KrisAssets/IGB

Sources say the anticipated REIT offering by IGB Corp could fetch valuations of between rm4.3 billion and rm4.6 billion for the two prime retail malls currently held under IGB’s subsidiary KrisAssets Holdings Bhd. The IPO for the retail REIT is expected to come in the 2HFY2012. The retail REIT is expected to start with two key assets, Mid Valley Megamall and The Garden Mall, both in the Mid Valley City area developed by IGB.

KrisAssets completed its acquisition of The Gardens Mall from IGB Corp in July 2011 for a cash consideration of rm223 million apart from taking over the holding company’s liabilities. Prior to that, KrisAssets only had Mid Valley Megamall in its portfolio.

Following of a recent valuation of the two retail malls, both now have a combined revised market value of about rm3.29 billion (rm2.36 billion for Mid Valley and rm930 million for The Gardens). KrisAssets said the valuations for both malls had been revised upwards following a revaluation exercise undertaken at end Dec 2011. Nevertheless, the valuations for both assets could be further revised upwards during the IPO exercise given that such valuations would place an emphasis of the assets’ earnings potential.

Based on calculation of KrisAssets’ malls shows that the rm2.36 billion revised market value for both malls translates into roughly rm944 psf, which is grossly undervalued compared with Pavilion REIT. Nevertheless, if the REIT exercise prices the two malls at up to rm4.6 billion, the valuation would be around rm1840 psf – still lower than Pavilion REIT’s pricing.

The potential REIT exercise, if it materialized would provide it a big boost to KrisAssets which is 75.66% owned by IGB Corp.

After IGB’s REIT plans come to fruition, question marks remain over KrisAssets’ fate!!! What is certain is that injecting KrisAssets’ malls into the REIT would free up capital for KrisAssets and IGB to undertake their other plans.