IGB Reit lacks near-term catalysts, says HwangDBS

IGB Real Estate Investment Trust (IGB REIT), the owner and operator of Mid Valley Megamall and The Gardens, lacks near-term catalysts because it does not have an attractive retail asset in the pipeline from its sponsor IGB Corporation Bhd, says HwangDBS Vickers Research.

The research house expects limited asset acquisition opportunities, and maintains a hold call.

For the first half ended June 30, 2013, IGB REIT recorded earnings of RM100.03 million on the back of RM208.43 million in revenue.

Going forward, the company said Gardens Mall would remain the revenue growth driver for the company on lower rental base, with stable cash flow supported by contributions from Mid Valley Megamall .

The market value of Mid Valley Megamall and The Gardens Mall remains at RM3.5 billion and RM1.2 billion respectively.

HwangDBS said third party acquisitions would be challenging due to excessive valuations in spite of low gearing of 25 per cent.

"The planned construction of Southkey Megamall in Johor is also expected to be a long-term play. Our price target is currently under review with potential downward bias.

"However, Gardens Mall will be the growth driver given the lower rental base than Mid Valley Megamall and 53 per cent of its net lettable area expiring this year," it said in a note today.

IGB REIT's current rental rates are estimated to be below RM10psf, a large discount to average rents at Pavilion KL (RM19psf) and Suria KLCC (RM22-25psf), despite its prime location.

Gross revenue and net property income, mainly from the gross rental income of Mid Valley Megamall and The Gardens Mall, were RM107 million and RM70.6 million respectively.