This article first appeared in The Edge Malaysia Weekly on August 30, 2021 - September 5, 2021

In any property sale, timing and location are the two key ingredients for getting full value. On this score, the IGB Group’s slew of commercial properties are located in prime areas.

However, the timing is not right for a listing. This was evidenced by the lukewarm response towards its IGB Commercial Real Estate Investment Trust offering on the stock exchange.

IGB Group’s listing of its commercial REIT, initially estimated at RM2.3 billion, is now poised to go public at about RM1.9 billion. The listing scheme was broken up into two parts, comprising a restricted offer for sale (ROFS) to existing shareholders, and a placement to institutional funds and selected investors.

In a nutshell, existing shareholders need to fork out RM2 and they will get five units in IGB Commercial REIT, meaning their cost is 40 sen per unit. The offering to institutions and selected investors was done by way of book building and one would have expected it to be priced at RM1 each, which is similar to the ROFS pricing.

However, as the offering hits the market, it has been downsized and is expected to be closer to 83 sen each. The ROFS to existing shareholders was also undersubscribed by 18.2%.

Initially, IGB had wanted to offer 282 million shares to institutional investors but reduced the amount to 130 million on July 23.

IGB Commercial REIT comprises 10 prime commercial properties. Nine out of the 10 are mature, able to offer lower-than-market tenancy rates, and collectively enjoy an occupancy rate of 83.5%. Only one property is fairly new and has a lower occupancy rate.

One would have thought that the listing is a proposition that many investors would grab. But that does not seem to be the case.

The market is probably sending a message that commercial properties are not in vogue and prices may get worse before they get better.

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