IGB is undervalued despite its portfolio of prime properties. But, the lack of proactive initiatives to crystallize its deep embedded value has engendered a value trap stigma. This would soon change.
IGB may be moving to optimize the ownership structure of its prime properties by embracing REITs as tax efficient vehicles to house its assets.
The momentum move would unleash a significant revaluation surplus from assets re pricing and free up capital for redeployment. The retail REIT comprising MegaMall and Gardens Mall – currently parked under KrisAssets – is likely to be first off the block.
The total accretion to IGB from the listing of the retail REIT is estimated to be about rm1.8 billion (or 59 sen per share), IGB may also rake in between rm465 million and rm1.4 billion cash, depending of its equity stake in the REIT).
This is a further rm1.05 billion revaluation surplus in IGB’s under appreciated portfolio of well occupied office buildings, which are carried in its book at low historical costs. The retail REIT may be the trailblazer for IGB to launch an office REIT further out.
A hospitality REIT for its hotel assets would complete the re pricing of its assets, transforming IGB to an asset light free based entity with controlling stakes in three listed asset specific REIT.
NAV realization and expectations of a cash payout to minorities would be the primary valuation drivers in the near term. IGB would need a delicate balance between a special dividend and deploying fred capital to fund development projects overseas. It is exploring the depressed property market in London.
With the exception of EPF with a 6% stake, IGB is ver under owned by other local institutional funds. Foreign ownership appears high at 35% as at Dec 2011.
The primary risk is the abolition of its plan to launch a retail REIT or protracted delays in its timing.
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