Notably, the acquisition values South Beach Property at $2.75 billion. The price tag of $834.22 million was derived after taking into account $1.16 billion in liabilities in Scottsdale and its subsidiaries.
The deal raises concerns that IOI Properties might have stretched itself too thin. Analysts believe, however, that listing a REIT could be a strategic move to reduce its gearing.
UOB Kay Hian says IOI Properties has appointed an adviser for a potential RM6 billion ($1.82 billion) to RM8 billion REIT, possibly including IOI City Mall Phases 1 and 2, Malaysian hotels and office assets.
The group’s balance sheet as at March 31 showed total borrowings of RM19.43 billion, including long-term debts of RM17.5 billion, while its cash balance stood at RM855 million.
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TA Securities and Hong Leong Investment Bank (HLIB) expect that the property group’s gearing ratio will soar to 0.93 times, from 0.7 times currently, if it decides to fund the deal with just borrowings.
Nonetheless, TA Securities maintains its “buy” call on IOI Properties, with a target price of RM2.78. The stock closed at RM1.91 on June 6. Meanwhile, HLIB pegs its target price at RM4.05 and MIDF Research has a “neutral” call on the stock, with a fair value of RM1.78, citing near-term gearing concerns.
HLIB anticipates the upcoming launch of W Residences at Marina View in Singapore as a potential source of substantial cash flow, which could further support capital management efforts.
As at March 31, the commercial components of South Beach achieved a committed occupancy rate of 92.4% for office space and 92.5% for retail.
According to TA Securities, IOI Properties’ investment properties were worth $6.5 billion as at end-June 2024. Its portfolio includes the $4.4 billion IOI Central Boulevard Towers in Singapore, which is expected to anchor a future REIT. “Monetising these assets could unlock value, reduce borrowings and strengthen the balance sheet,” says TA Securities.
Real estate agency Zerin Properties founder and group CEO Previn Singhe says IOI Properties’ recent acquisitions, including the mall and hotels it bought from Tropicana Corp, signal a shift towards stabilised, yield-focused holdings, which are ideal for a REIT.
“A REIT offers tax efficiency, recurring income and capital recycling while allowing IOI Properties to retain control via a sponsor stake,” he tells The Edge Malaysia.
LaurelCap executive director Stanley Toh concurs that while the South Beach deal may strain short-term gearing, the long-term benefits of owning prime Singaporean real estate outweigh near-term risks.
With cross-border assets and Singapore’s deep REIT market, property consultants believe IOI Properties may favour a Singapore Exchangelisting. But some quarters do not rule out the possibility of the group forming two REITs, given that it owns real estate on both sides of the Causeway (see table).
“Singapore offers valuation premiums, global liquidity and currency stability. A REIT is a natural evolution for IOI Properties’ portfolio strategy,” says Zerin Properties’ Previn.
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“With Singapore’s globally respected REIT regime and capital depth, the company stands to benefit not just from tax and valuation advantages but also from an enhanced hanced international profile.”
IOI Properties group CEO Lee Yeow Seng previously told The Edge Singapore that a Singapore-listed office REIT “makes sense”, given investor familiarity.
Olive Tree Property Consultants CEO Samuel Tan says it is a logical move for IOI Properties to monetise its assets by creating a REIT either in Malaysia or Singapore. “To the investment community, they now have the opportunity to participate in a good asset class of shopping malls spread over the region. This is a good derisking strategy amid an uncertain market,” Tan says.
“Not only will they enjoy a continuous stream of income but the funds raised can be used for other purposes, including the reduction of debts or the purchase of other good assets.
“It is a prudent way to unlock value for its shareholders. Unlike others, South Beach Tower is already receiving regular income and need not be incubated. This will enhance the yield accretion of the REIT.”
IOI Properties’ assets include those acquired from Tropicana Corp: the 150-room W Kuala Lumpur (RM270 million), the 199-room Courtyard by Marriott Penang (RM165 million) and the Tropicana Gardens Mall, now known as IOI Mall Damansara (RM680 million).
There are also IOI City Mall, the largest mall in Malaysia with a net lettable area (NLA) of 2.54 million sq ft; IOI Mall Puchong (887,000 sq ft NLA); IOI Mall Kulai (271,000 sq ft NLA); IOI Mall Xiamen (639,000 sq ft) and IOI Business Park (371,000 sq ft NLA) in Xiamen, China; IOI City Towers 1 and 2 (968,000 sq ft NLA) in IOI Resort City in Putrajaya; and IOI Central Boulevard Towers (1.29 million sq ft NLA) in Singapore.
Other IOI Properties hotels are the 488-room Putrajaya Marriott Hotel, 353-room Le Meridien Putrajaya, 480-room Moxy Putrajaya, 249-room Four Points by Sheraton Puchong and 152-room Palm Garden Hotel, a Tribute Portfolio Hotel.
IOI Properties entered the Singapore market in 1996 with the development of the 12-storey IOI Plaza, now known as Singapore Pools Building. It later developed Cape Royale and Seascape in Sentosa Cove, The Trilinq in Clementi and IOI Central Boulevard Towers in the Marina Bay area. There are also the 683-unit branded luxury condo W Residences Marina View, which will be perched atop the upcoming 350-room W Singapore hotel, part of a 51-storey mixed-use development.
