10 Things To Know About IGB Commercial Real Estate Investment Trust Before You Invest

IGB Commercial Real Estate Investment Trust (“IGB Commercial REIT”) has recently postponed its planned initial public offering (“IPO”), after extending the closing date for the restricted offering to August 20 from July 6. Meanwhile, the REIT’s tentative listing date has been pushed to September 20, from July 30. Here are 10 interesting facts about the IGB Commercial REIT IPO that investors should be aware of.  

1. Overview of subject properties

IGB Commercial REIT’s initial property portfolio will consist of 7 Mid Valley City (MVC) properties and the 3 Golden Triangle properties. 

The MVC properties consists of Menara IGB & IGB Annexe, Centrepoint South, Centrepoint North, Boulevard Properties, Gardens South Tower, Gardens North Tower and Southpoint Properties. MVC is a premier integrated development in Kuala Lumpur, complemented by an array of amenities are transportation options. 

The Golden Triangle properties consist of Menara Tan & Tan, GTower and Hampshire Place Office. The Golden Triangle area in Kuala Lumpur is the core business district of the nation.

2.  Largest standalone office REIT by market capitalization  

Upon listing, IGB Commercial REIT is expected to have a market capitalization of RM2,307.3 million, making it the 6th largest Malaysian REIT and the largest standalone office REIT by market capitalization. As a standalone office REIT, IGB Commercial REIT offers investors the opportunity to gain direct exposure to the office sector. 

The chart below ranks listed Malaysian REITs according to market capitalization. 

(Source: IPO prospectus)

Investors should note that KLCC Stapled Group is a stapled security which comprises of KLCC Property Holdings Berhad (KPCCP) and KLCC Real Estate Investment Trust (KLCC REIT). Although the portfolio of KLCC REIT consists of office buildings only, due to the stapled nature of both KLCCP and KLCC REIT, KLCC Stapled Group is not considered as a pure office REIT.   

3.  Largest standalone office REIT by Net Leasable Area (NLA)

With an aggregate NLA of approximately 3.4 million sq. ft., IGB Commercial REIT will also be the largest standalone office REIT to be listed on Bursa Malaysia by NLA. The chart below ranks Malaysian REITs according to aggregate NLA.

(Source: IPO prospectus)

Portfolio wise, IGB Commercial REIT’s MVC properties and Golden Triangle properties make up approximately 61.8% and 38.2% of the REIT’s total NLA. 

4. Portfolio of quality tenants

IGB Commercial REIT has a high proportion of renowned and established organizations as tenants. The tenancy portfolio has a high proportion of large and established tenants such as multinational companies, public listed companies, embassies, government linked companies or IGB Berhad itself. 

The top 10 tenant contribute not more than 23.0% or 21.9% of the aggregate occupied NLA or gross rental income respectively, which signifies low concentration risk among tenants. Furthermore, the REIT also has diversified tenant base with none of the trade sector mix exceeding 21.8% of the aggregate occupied NLA, which renders it less susceptible to sectorial risk. 

5. Occupancy rate of above 75.0% for the past 3 years 

IGB Commercial REIT has achieved average occupancy rates of above 75.0% over the financial years ended (FYEs) 2018, 2019 and 2020. If we were to exclude Southpoint Properties which was only completed in 2018, the average occupancy rates for MVC properties would improve to above 80.0%.  Comparatively, the Golden Triangle properties have lower average occupancy rates of at least 70.0% over the same period. 

(Source: IPO prospectus)

The following table sets out the individual occupancy trends of all 10 properties of IGB Commercial REIT for the FYEs 2018, 2019 and 2020. 

(Source: IPO prospectus)

6. Total revenue of the REIT has been declining  

IGB Commercial REIT’s total revenue is made up of gross rental income and revenue from contracts with customers.

Gross rental income is the total amount payable by tenants, net of rent rebates and discounts pursuant to a tenancy under a tenancy agreement. The Group’s tenancy agreements are generally for a maximum period of 3 years. 

Separately, revenue from contracts with customers include service charges for maintenance or management of common areas, utilities recoverable, car park income and other income such as recovery of expenses relating to operations and maintenance works carried out for tenants. 

The following table sets out the total revenue of all 10 properties of IGB Commercial REIT for the FYEs 2018, 2019 and 2020 respectively. Overall, gross revenue has been on a declining trend, and investors should be mindful of the factors behind this. 

(Source: IPO prospectus)

For the FYE 2020, approximately 150 tenants, whose businesses were affected by the movement control order consequential to the Covid-19 pandemic, were granted rental reliefs of approximately RM4.4 million. 

The Covid-19 pandemic has also resulted in companies being increasingly sensitive towards business costs. Some businesses will be reassessing their business plans including office expansion and relocation, and the office market is likely to remain soft in the short term. As such rental reversion may be negatively impacted in the short term. 

The table below shows the expiration of tenancies of the 10 properties of IGB Commercial REIT in the coming years. Fortunately, the tenancy expiries are spread across several years. 

(Source: IPO prospectus)

7. Distribution policy 

It is the intention of the REIT to distribute at least 90.0% of IGB Commercial REIT’s distributable income on a half-yearly basis (i.e. 1 January to 30 June; and 1 July to 31 December). 

For the period from the listing date to 31 December 2021, IGB Commercial REIT will distribute 100.0% of its distributable income. The first distribution, which will be in respect of the period from the listing date to 31 December 2021, will be paid within 2 months from 31 December 2021. 

8. Borrowing limitations and gearing policy

IGB Commercial REIT may borrow up to 50.0% of the total asset value of IGB Commercial REIT at the time any borrowing is incurred.

Upon listing, based on IGB Commercial REIT’s pro forma consolidated statement of financial position, IGB Commercial REIT will have a total indebtness of approximately RM850.9 million (net of estimated financing transaction costs of approximately RM2.3 million) representing approximately 26.3% of its estimated total asset value of RM3,234.7 million based on IGB Commercial REIT’s pro forma consolidated statement of financial position.

9. Reputable and committed sponsor 

The sponsor, IGB Berhad (KLSE:IGBB), is one of the largest listed property companies in Malaysia and carries with it the strong branding and success stories of IGB and MVC. The sponsor is engaged in all aspects of the property industry across Asia, Australia, the United States of America and United Kingdom, with its core business in retail, commercial, residential, construction and hospitality.   

As sponsor, IGB Berhad has given the IGB Commercial REIT the right of first refusal to future acquisition opportunities of income-producing commercial properties. IGB Commercial REIT will be able to benefit from a pipeline of assets which could potentially be acquired from the sponsor.  Post listing, IGB Berhad will remain as the REIT’s largest shareholder, with a substantial ownership of at least 50.0% stake of IGB Commercial REIT.

10. Principal details of the IPO offering 

IGB Commercial REIT’s IPO Offering will consist of a Restricted Offering of up to 945 million units and an Institutional Offering of at least 130 million units (reduced from 282 million units previously). 

The Restricted Offering comprises a restricted offer for sale of up to 378 million units at RM1 each to IGB Berhad shareholders, on the basis of two restricted offer-for-sale units (ROFS) for every five IGB Berhad shares held, besides a distribution-in-specie of up to 567 million units in IGB Commercial REIT on the basis of three distribution-in-specie units (DIS) for every two ROFS units subscribed.

Meanwhile, the Institutional Offering involves the offering of at least 130 million units to institutional investors and selected investors, plus an offer for sale of all unsubscribed ROFS units together with the corresponding DIS unit. 

Upon listing, the property trust is expected to have a market capitalization of RM2.31 billion, based on the price of the ROFS units at RM1 each. This gives a forecast yield of 3.90% (based on a distribution rate of 100% for FYE 2020) and a forecast price to book value of 1.0.

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