“The wide gap between net yield and NPI yield is largely attributable to the high depreciation and amortisation charges, as well as interest expenses,” UOBKH says. According to the report, management aims to raise the average room rate to $600 (from $460 currently) by targeting more retail or rack-rate bookings. This would raise net yields to 3%, the report estimates.
South Beach’s office component’s physical occupancy is 80% due to the departure of an anchor tenant, Its committed occupancy is at 92.4% as of end-March. Average monthly rental is currently around $11 psf, higher than the average CBD Grade A office rents of $9.80 psf, according to Savills Research.
IOIPG also owns IOI Central Boulevard, whose committed occupancy is at 85%, up from 80% as of end-March.
The valuation of both South Beach Development and IOI Central Boulevard are estimated at around $7 billion to $8 billion.
“Assuming IOIPG retains a 50% stake in both REITs, it could reap total proceeds of RM15 billion - RM17 billion to pare down debt and gearing to around 0.3x, per our estimates,” UOBKH says.
As of end-Mar 2025, IOIPG’s total borrowings stood at RM19.4 billion, excluding the $1.09 billion for the South Beach Development. If the debt for South Beach is included, UOBKH estimates IOIPG’s net gearing is likely to be 0.93x.
“We continue to see 2H2026 (IOIPG’s 1HFY2027 as IOIPG has a June year-end) as the likely window for a REIT listing, covering assets including IOI City Mall phases 1 and 2, offices, and hotels in Malaysia with an estimated valuation of RM7 billion-RM8 billion,” UOBKH says.
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The 3-month SORA has continued to decline ytd, easing to 2.2% from 3.0% in early-2025. As IOIPG’s Singapore borrowings are on floating rates with a spread, its effective interest rate is expected to ease from about 4% to around 3.2% accordingly.
Assuming 64% of IOIPG’s RM15.7 billion Singapore borrowings have been expensed (and the remainder capitalised), IOIPG’s annual interest cost for Singapore borrowings would be around RM400 million. “Based on this, a 50 bps reduction in interest rates would result in estimated savings of RM50 million per year,” UOBKH says.
