The rise of another giant REIT. We initiate coverage on IGB REIT (IGBR) with a HOLD and a MYR1.39 DCF-based TP. IGBR provides investors the exposure to the largest REIT by market capitalization and 2nd largest by free float in Malaysia. Growth will be underpinned by organic growth in its existing retail assets - Mid Valley Megamall (MVM) and The Gardens Mall (GM).

Superior location draws crowd. Strategically located in the heart of Mid Valley City and the fringe of Kuala Lumpur CBD, MVM and GM are supported by offices and mature affluent townships within/surrounding the Mid Valley City. Footfall of the two malls has been stable at around 34m p.a. despite rising competition from new malls. Its attractiveness will be further enhanced by ongoing and future mixed developments in the surrounding areas, which would further grow its catchment.

Benefits from improving connectivity and accessibility. IGBR is set to benefit from the upcoming MRT Circle Line under the Greater KL/KV‟s integrated urban transportation system via a proposed linkage from Mid Valley City to KL Eco City‟s Komuter/LRT/MRT station. We believe that increased accessibility and connectivity will drive shopper traffic further and this will in turn serve as a strong catalyst to IGBR‟s capital value and bargaining power for positive rental reversions.

The perfect match. IGBR has a good combination of mature and young assets - MVM anchors the earnings base while the relatively young GM provides significant room to grow average rental, which was 19% below the MVM on a psf basis in 5M12. 18.5% of IGBR‟s rental income is backed by long lease agreements whilst the portfolio tenancy expiry profile is well spread out, with 39% and 31% of the tenancies due for renewal in 2013 and 2014 respectively; provides income stability.

Fairly valued. Our TP translates to an implied yield of 5%, versus a 4.9% average for large cap retail REITs (4.8% for PavREIT and CMMT, 5.3% for SunREIT). We like IGBR for its quality assets, earnings resilience and liquidity. IGBR‟s relatively low 26% debt-to-asset ratio allows it the capacity to borrow another MYR2.3b for asset acquisitions.

Source: Maybank Research - 17 Oct 2012