IGB Corp Bhd is said to be mulling over another two real estate investment trusts (REITs) to unlock the value of its office and hotel assets after the company announced plans last week to establish and list a retail REIT on Bursa Malaysia.
An analyst with a bank-backed brokerage said IGB's management was looking at the possibility of launching an office REIT after the debut of its retail REIT, to be followed by a hotel REIT after that.
“Such plans would crystallise the deeply embedded value of its office and hotel assets,” he told StarBiz.
The listing of IGB's maiden REIT, the retail REIT, around the third or fourth quarter of this year is to unlock the value of its two prime retail assets Mid Valley Megamall and The Gardens Mall.
Both the malls are currently parked under IGB's 75%-owned unit, KrisAssets Holdings Bhd.
Mid Valley Megamall has a net lettable area (NLA) of 1.77 million sq ft and The Gardens has 820,000 sq ft. The two retail assets have an estimated total asset value of close to RM4bil.
In the hospitality sector, IGB owns 16 hotel assets in Malaysia and seven overseas. It is also said to be building two new hotels in Penang.
As for its office portfolio, IGB owns seven office buildings with total NLA of 2.2 million sq ft. Of its office portfolio, five are in Mid Valley City in Kuala Lumpur where its two retail malls are also located.
The buildings are Menara IGB with NLA of 251,751 sq ft; Centrepoint South (233,804 sq ft); Centrepoint North (231,115 sq ft); Gardens North Tower (426,870 sq ft); and Gardens South Tower (408,314 sq ft).
The other two buildings in the city are Menara Tan & Tan with NLA of 340,596 sq ft and Plaza Permata with 190,511 sq ft.
The analyst said Mid Valley City's office market remained strong, in-line with the strong demand for suburban office space.
“The strong rental demand could be attributed to the rising maturity of the area, easy accessibility as well as the appeal of Mid Valley MegaMall and Gardens Mall,” he added.
The most recently completed office buildings Gardens South and North Tower enjoy occupancy rates at over 90% respectively. They command average rental rates of RM6 per sq ft (psf) to RM6.50 psf; comparable to buildings in Kuala Lumpur city centre.
Menara IGB, Centrepoint North and Centrepoint South towers have occupancy rates of 96% to 100%, but their rental rates are slightly lower at RM4.20 psf to RM5 psf given that these are not new buildings.
The group's two other office buildings Menara Tan & Tan and Plaza Permata in the city continue to deliver occupancy rates in excess of 85%.
A recent research note on IGB from a local brokerage said IGB's under-appreciated portfolio of office buildings would be able to provide significant valuation kicker to the group.
“IGB's portfolio of office buildings are all carried in its book at historical costs of just RM550mil versus our estimated market value of RM1.61bil.
“The Gardens North Tower is carried in its book at just RM140mil or RM329 psf, while Gardens South Tower is at RM136.9mil or RM335 psf.
“This is despite both buildings enjoying excellent prime rentals of RM6-6.50 psf. Based on capitalisation rates of between 6%-7%, the potential revaluation surplus is estimated to be about RM1.05bil, representing almost 70 sen/share (or 28% of IGB's current market capitalisation),” the report added.