Rakuten Trade Research is positive about IOIProp’s “aggressive expansion”.
PETALING JAYA: IOI Properties Group Bhd
(IOIProp) is showing no sign of slowing down from its property acquisition activities, with its latest buy – the Tropicana Gardens Mall (TGM) here – garnering mostly positive views from analysts.
The group on Tuesday announced its latest deal, the proposed takeover of the mass rapid transit station-linked mall for RM680mil, which is actually about 28% below the book value of RM944mil.
Hong Leong Investment Bank Research (HLIB Research) said in a report the transaction is expected to be completed by the the first quarter of next year, which is the third quarter of IOIProp’s financial year ending June 2025 (FY25).
Rakuten Trade head of equity sales Vincent Lau is positive about IOIProp’s “aggressive expansion”, as it is confident the group would be able to turn the mall back into the black.
Meanwhile, TA Research said TGM has generally been loss-making, with the exception for the year ended December 2021 when it reported a net profit of RM500,000, and incurred a RM16mil loss for the year ended December 2023.
Lau said that IOIProp has negotiated a good price for TGM.
“Moreover, the group is currently running another successful mall, the IOI City Mall in Putrajaya, which is also the largest in the country with 2.5 million square feet in net lettable area.
“As such, we do not foresee any major challenges for it to replicate this success with TGM,” the research house said.
On the prospects of IOIProp listing its properties as a real estate investment trust (REIT), Lau said the move is sensible given the group’s recent proactive acquisition activities, although it acknowledged the matter is still very much under wraps.
“The purchases that IOIProp are making are in line with its possible objective of setting up a REIT because such trusts will make sense as they are more sizeable, which can then offer investors diversity and liquidity,” the research house said.
Meanwhile, HLIB Research said the reason IOIProp was able to buy TGM at a discount was due to its en bloc purchase of several large assets from Tropicana Corp Bhd, which in the past eight months included the W Hotel Kuala Lumpur for RM270mil and the Courtyard Penang for RM165mil.
Despite TGM still making losses, the research house sees value in the acquisition due to the strategic location of the mall, which has direct connection to public transit, and its proximity to several mature townships including Kota Damansara, Sunway Damansara and Mutiara Damansara.
The research firm is confident that IOIProp can enhance the value of TGM by increasing its occupancy rate and improving its tenant mix, capitalising on the group’s strong brand, extensive experience in mall management and established relationships with retail brands.
“To illustrate this point, IOIProp built IOI City Mall in Putrajaya in 2014 on a greenfield location with low population catchment and road infrastructure that was not well developed.
“Fast forward 10 years later, the mall is now the largest mall in Malaysia and is currently thriving with very strong footfall. IOI City Mall now has a blended rental rate of around RM10.8 per sq ft with 99% occupancy rate,” the research house said.
It added that TGM holds significant potential as it is in a much more strategic location with larger population catchment and better connectivity.
“As such, we believe the group can realistically double the mall’s rental revenue in five to six years,” said HLIB Research.
On a separate note, TA Research is bullish about IOIProp’s purchase of a 9.9-acre site in Pantai Kok, Langkawi, given the island’s robust tourism prospects.
Referring to data from the Langkawi Development Authority (Lada), the research house noted a decrease in tourist arrivals during the Covid-19 lockdowns, dropping from over 3.9 million visitors in 2019 to around one million in 2021.
“However, by 2023, the numbers gradually increased to about 2.5 million, partly attributed to the island welcoming five chartered flights from Chengdu and another five from Chongqing, China.
“For 2024, Lada targets three million arrivals, having already achieved 250,000 in January alone,” it said.
It said the ratio of foreign visitors has also improved to 48% since January this year, up from 30% previously.
TA Research believed Langkawi’s status as a duty-free island with attractive shopping destinations, rich history and natural beauty makes it an ideal location for a new hotel development to attract both local and international visitors.
In terms of financial impact, it estimated IOIProp’s net gearing will see an increase from 0.73 times in the third quarter of FY24 to 0.92 times, on the assumption that the acquisitions of Shenton House Singapore, TGM and the Pantai Kok land are financed entirely through debt.
It said while specific timelines and details regarding the initial public offering of IOIProp’s potential REIT were not available, the carrying value of IOIProp’s investment properties stands at RM18bil.
“By creating a REIT, IOIProp can unlock the value from its investment properties, reduce debt and improve its balance sheet, thereby mitigating the impact of these acquisitions on its net gearing ratio,” said TA Research.
