- We re-affirm our HOLD recommendation on IGB REIT (IGBR), with an unchanged fair value of RM1.38/unit based on a 10% to our DCF value, following the release of its 3Q results. 

- IGBR's 3QFY12 results, which covered the period from 25 July to 30 Sept 2012, were above expectations, exceeding management's earnings forecast by 12.9% as well as ours and consensus' estimates, on an annualised basis. No dividend was declared. 

- IGBR was incorporated on 25 July 2012 capturing only 68 days in the 3Q. Listed recently on the 21 September, the 3Q result only captures an 11-day impact. It only completed the acquisition of its property portfolio on 20 September 2012.

- Gardens Mall, being the relatively younger mall, is envisaged to act as the key growth driver. Blended rentals are fairly low at RM8.74/sf (a discount to Suria KLCC's RM25/sf and Pavilion Mall at RM18/sf) despite its high-end mall status. A voluminous 54% of NLA is expiring next year. More importantly, this represents the second round of rental reversion and, hence, still in the early stages of the rental cycle. 

- We understand there is a potential tenant remixing in Mid Valley Megamall should Carrefour (12.3% of NLA) decides to exit. As such, a positive boost to rentals can be achieved via segregating these large spaces into smaller units, given that speciality stores are able to yield higher rentals. To-date, blended rentals are at RM10.75/sf, comparable to Sunway Pyramid of RM10.30/sf.

- Admittedly, in our view, the upcoming Southkey Mall project is a little too far-off at this point, given the estimated timeframe of at least 8 years for its injection into the REIT. Despite the inadequate secured pipeline of asset injections in the near term, we like IGBR for its retailoriented malls that are backed by a strong and reputable sponsor. This should therefore lead to further earnings expansion and enhancements, going forward. Note that IGBR is granted the right of first refusal for all IGB Corp's properties. 

- Relative to its peers (FY12F ' PavREIT: 4.5%, CMMT: 4.5%), IGBR's FY12F and FY13F distribution yield is estimated at 5.1% and 5.3%, respectively, based on a 100%  payout ratio.

- Although we are of the view that IGBR intends to grow organically for now, we like its quality asset and retailfocus within the Klang Valley ' hence, our HOLD recommendation pending potentially more constructive asset injections ahead.    

Source: AmeSecurities