21 May 2012
IGB REIT's malls are valued at a whopping RM 1,815 per sq ft, IGB Corp to gain from RM 1.05 Billion revaluation surplus and RM 951 Million cash payoff - CIMB Research
(IGB opening stock price today (21.5.2012) was RM 2.71)
IGB Corps net profit of RM57.4mil for the first quarter ended March 31 was in line with our and streets estimates, covering about 28% of full-year numbers.
As expected, no interim dividend was declared. Its core earnings showed a strong recovery quarter-on-quarter, following a one-off provision of RM40mil for MidValley Citys infrastructure cost in the preceding quarter and more meaningful progress billings from ongoing developments, such as Seri Ampang Hilir (gross development value of RM90mil) and Manor Park in Sungai Buloh.
The groups earnings may be stronger in the second half of the year, in view of the potentially stronger billings in the coming quarters.
As expected, the property investment unit remained as the major contributor, which saw its earnings before interest and tax (EBIT) growing by 53% quarter-on-quarter due to recent renewals at Gardens Mall about 60% of the net lettable area.
Likewise, there was a healthy growth of 48% year-on-year due to a strong all-round performance, especially at its hotel division EBIT grew by over 50% due to better average room rate and occupancy rates.
Moving forward, IGB will benefit handsomely from the listing of its two malls MidValley Megamall and Gardens Mall via an establishment of a real estate investment trust (REIT).
The malls are valued at RM4.6bil or at a whopping RM1,815 per sq ft, and would result in a revaluation gain of RM1.3bil to KrisAssets or RM992mil (or 67 sen per share accretion) to IGB.
There will be a special dividend and capital repayment amounting to RM1.27bil, which translates into an attractive RM2.88 per share.
Based on IGBs 75% stake, the company stands to get a handsome cash payoff of RM951mil or 64 sen per share.
There is a further revaluation surplus of RM1.05bil in IGBs under-appreciated portfolio of well-occupied office buildings (2.2 million sq ft), which are carried in its book at low historical costs.
We believe the office REIT will be launched next year once the retail REIT listing is done.
A hospitality REIT for its hotel assets would complete the re-pricing of its assets, transforming IGB into an asset-light fee-based entity with controlling stakes in three listed asset-specific REITs.
IGB rose by close to 20% after our upgrade in January but has been hovering at RM2.75 to RM2.80 per share over the past two months, given the weak sentiment in the market.
We expect the stock to trade at a narrower discount, now at about 39%, given the good valuation for its prime assets.