Introduction
IOI Properties Group Berhad (IOIPG) was successfully listed on the Main Market of Bursa Malaysia in January 2014. It is becoming the largest property company in Malaysia in terms of profitability. Its main assets span over Selangor, Johor, Negeri Sembilan, Melaka, Singapore and China.
“Building Connections Expanding Horizons” reflects the company’s determination to create vibrant and thriving communities through positive impacts, responsible actions and sustainable management of its operations while striving to deliver excellence and exceed expectations.
The Humble Start
In December 1975, the late Tan Sri Dato’ Lee Shin Cheng started a private-limited property company named Lam Soon Huat Development Sdn Bhd (later renamed as IOI Properties Berhad in 1994) and started his first housing development project in Kajang in the following year.
Subsequently in February 1984, he acquired three property development companies (Bukit Kelang Development Sdn Bhd, Rapat Jaya Sdn Bhd and Eng Hup Industries Sdn Bhd) and further expanded his property business. In the subsequent year May 1985, the housing project “Taman Mayang” in Petaling Jaya was launched.
IOIPG achieved a milestone in the expansion of its property business in May 1990 when it launched the massive Bandar Puchong Jaya, a comprehensive self-contained township development in Puchong, Selangor covering an area of 939 acres.
The Rapid Expansion
Having established itself as a formidable property company in Selangor, IOIPG then entered into a rapid expansion phase in 1990s-2010s and expand to other regions and markets.
In August 1995, IOIPG forayed into the property market in Johor with the launch of Bandar Putra Kulai, a comprehensive township development covering an area of approximately 5,680 acres. That was by far the largest piece of land acquired for township development by the Group.
Immediately after its foray into Johor, IOIPG launched development of another township known as Bandar Putra Segamat in Johor in February 1996.
Without stopping its footsteps in southern Malaysia, IOIPG then made its first foray into Singapore with the purchase of 2,600 square metres of land for IOI Plaza. The building was later sold in 2010.
IOIPG entered the Negeri Sembilan property market in September 1997 with the launch of Taman Regent, a new development in the state.
In February 1999, the Group launched Bandar Puteri Puchong, a 930-acre of township development adjacent to its Bandar Puchong Jaya.
The Group strengthened its stronghold in Selangor south property market by acquiring over 500 acres of land adjacent to Cyberjaya for township development in September 2001.
Not long after that, the Group entered the Melaka property market with the launch of Putra Heights, a 43-acre of prime bungalows.
In March 2007, the Group won a joint-bid with Ho Bee Investment Ltd to buy 3.6 acres of leasehold land on Sentosa Cove, Singapore for the development of Seascape. Subsequently in January 2008, IOIPG successfully joint-tendered with Ho Bee Investment Ltd for 5.3 acres of 99-year leasehold land located at Sentosa Cove, Singapore for the development of Cape Royale, another upmarket landed residential property development.
The Group launched Taman Kempas Utama township development in Johor Bahru in May 2008. In the same month, IOIPG acquired 53% interest in Mergui Development Pte Ltd for the purchase of a freehold parcel at Farrer Park, Singapore for the development of Cityscape. An additional 7% was later acquired.
16 Sierra, a signature township development situated across 535 acres in South Puchong, was launched in January 2010.
In June 2010, IOIPG made its first foray into Xiamen, PRC with the successful tender of a 7.7-acre site for the residential development of IOI Park Bay.
In January 2012, IOIPG won the tender for 6.03 acres of 99-year leasehold land near Clementi Town Centre at Jalan Lempeng, Singapore for the development of The Trillinq, which was launched in 2013.
IOIPG made the second foray into Xiamen, PRC with the purchase of a 44-acre land at Jimei District for the mixed development of IOI Palm City.
The Group launched Bandar IOI Bahau, a 500-acre of mixed development in Bahau, Negeri Sembilan in November 2013.
Bandar Puteri Bangi, a 370-acre of freehold township in Bangi was launched in January 2015. This was followed by the launch of Warisan Puteri, a 202-acre of freehold township in Sepang.
In January 2016, IOIPG acquired 400 acres of strategic landbank located within IOI Resort City, bringing the total area to 788 acres.
The Group acquired a piece of 6.2-acre land in Xiang’an, Xiamen in the PRC in August 2016, intended for mixed development.
In August 2016, it acquired a piece of 322-acre land in Banting, intended for an industrial park, tentatively named BC Industrial Park and later renamed as IOI Industrial Park.
IOIPG launched IOI Palm International Parkhouse in July 2019 for a total of 631 units comprising 588 residences and 43 commercials.
The Group launched Sierra Fresco, the new 98,000 sf commercial hub and IOI Galleria at 16 Sierra, Puchong South in September 2023.
It then had the groundbreaking of Senna Puteri, a 117-acre township in Bandar Baru Salak Tinggi in April 2024.
Building a Portfolio of Hospitality Assets
A milestone was achieved in July 1995 for IOIPG with the official opening of Palm Garden Hotel, a four-star hotel located within IOI Resort City that comes with 151 guest rooms, which is the first hotel launched by the Group.
The Group achieved another milestone for its hospitality business in 2003 when it officially launched Putrajaya Marriott Hotel located at IOI Resort City. The opulently designed five-star hotel comprises 488 tastefully designed guest rooms and suites.
In April 2012, the newly refurbished 18-hole Palm Garden Golf Club located in IOI Resort City, Putrajaya was officially launched and open to the public.
In August 2016, the Group had the official opening of Le Meridien Putrajaya, a 353-room five-star world-class hotel located in IOI Resort City.
The grand opening of JW Marriott Hotel Singapore South Beach, a five-star designer hotel comprising 634 rooms set in the city centre of Singapore, was held in March 2017.
In September 2021, IOIPG purchased the land parcel located within Singapore’s central business district, intended for the development of residential and hotel components. This land is currently under development for W Hotel Singapore and Marina View Residences.
On 1 December 2023, the Group had a signing ceremony of hotel management agreement with Marriott International, Inc for the 350-room luxury hotel, W Singapore – Marina View which is scheduled to be in operations late 2028.
The 480-room Moxy Putrajaya debuted in Malaysia on 6 February 2024. This luxury hotel is located adjacent to IOI City Mall.
Two days later, IOIPG acquired W Kuala Lumpur, a 150-room hotel on 8 February 2024.
Going Big into Commercial Property Development
In the continuous development of its township in Puchong, IOIPG built its maiden shopping mall, IOI Mall Puchong in the heart of Bandar Puchong Jaya, the mall commenced operations in May 1996 and was officially launched by the Menteri Besar of Selangor on 15 November 1996. A new wing was added in 2009.
IOIPG built another shopping mall, IOI Mall Kulai in its Bandar Putra Kulai, Johor township. The mall commenced operations in December 2001.
In June 2009, IOIPG completed investment properties, IOI Boulevard in Puchong, and Tower 1 and Tower 2 of Puchong Financial Corporate Centre (PFCC). Tower 2 obtained Multimedia Super Corridor (MSC) Malaysia Cybercentre Status in 2012.
In April 2011, the Group entered into a joint venture with City Development Limited (CDL) for the mixed development “South Beach” project in Singapore. The 1.65 million square feet South Beach project successfully topped out its 45-storey South Tower in December 2014 after its 43-storey North Tower was topped out earlier in 2014.
One big achievement in commercial property development came in November 2014 with the official opening of IOI City Mall Phase 1 with NLA 1.5 million square feet. Then in July 2018, IOIPG commenced work on IOI City Mall for its Phase 2 expansion to increase the mall’s NLA by 1 million square feet. IOI City Mall Phase 2 was commemorated in October 2020 and launched in July 2022, making it the largest mall in Malaysia, with a total NLA of 2.5 million square feet. IOI City Mall received Green Building Index (GBI) certification in October 2022. IOI City Mall Phase 1 took the Merit award in Large Green Building under the Category 2 – Energy Efficient Building segment.
IOI City Mall (Source: IOIPG Annual Report 2023)
In November 2016, IOIPG acquired the site for IOI Central Boulevard Towers in Marina Bay Financial Centre, Singapore. The strategically located 2.69-acre land is intended for prime office development. The Group commemorated the topping out of IOI Central Boulevard Towers in August 2023.
The first commercial mall of IOIPG in the PRC commenced business operations at IOI Mall Xiamen in October 2021.
ESG Efforts
IOIPG strives to minimise the environmental and social impacts of our property development activities which includes due consideration on the design, technology and the use of resources. As such, the launch of the sustainability roadmap is an essential strategic development towards “greening” the Group’s business model and operations that will contribute towards cost and operational efficiencies as well as synergistic benefits that will positively impact the environment and society.
The Group embarks on various ESG efforts in its township development such as:
· Passive design that reduces energy and water consumption
· Increase EV charging stations across developments
· Installation of rooftop solar panels
· Develop smarter energy-efficient buildings
· Use of system formwork for high rise buildings
· Rain water harvesting capabilities
In Malaysia, the Group was the first integrated property player to conduct a Carbon Footprint Assessment to calculate and analyse the upfront embodied carbon of its prestigious Gems Residences project, which comprises eight (8) high-rise residential towers with a total of 676 units. The assessment of the project’s upfront embodied carbon was conducted in accordance with the methodologies specified by the UK Royal Institution of Chartered Surveyors (“RICS”) and the UK Institution of Structural Engineers (IStructE), with respect to the lifecycle stages as defined in the EN 15978 standard for building lifecycle assessment. The upfront embodied carbon is 553kg CO2e per m2 based on Gross Floor Area (GFA), 1 band below the ideal LETI 2020 Good Design Target.
Moving forward, the Group wish to assess the embodied carbon of its developed products, as we aspire to play a concerted role in supporting the national government’s aspiration (Malaysia, Singapore and PRC) to achieve Carbon Neutrality or Net Zero.
The upcoming premium Grade A office building, IOI Central Boulevard Towers (IOI CBT) located at Marina Bay, Singapore, exemplifies a new benchmark in urban commercial development for the Group, where sustainability-based principles are at the forefront of the design philosophy.
It comprises two office towers of 16 and 48 storeys as well as a 7-storey podium respectively, with a total office area of 1.26 million sq ft and 30,000 sq ft of retail, food and beverage spaces. IOI Central Boulevard Towers emphasises the optimisation of natural lighting and ventilation as well as aircon balancing, all of which promote energy efficiency. The implementation of technology enabled systems regulates air-conditioning use, with temperatures and speed of air-conditioning being automatically adjusted to the number of people present in event spaces.
The building is designed in support of Singapore’s national goal of net-zero carbon emissions, while promoting more conducive working spaces and environments. IOI Central Boulevard Towers also features Central Green, a 60,000 sq ft sky park, which features lush greenery amidst a 200-metre jogging track and bicycle parking lots. Other facilities and amenities include a childcare centre for working parents, changing rooms and shower facilities to encourage a more work-life balance as well as recycling systems, waste disposal, and cleaning materials.
As a Green Mark Platinum Certified building, IOI Central Boulevard Towers shall achieve approximately over 4,100 tonnes of carbon dioxide emission reduction per annum while also expected to achieve 30% energy and water savings as compared to conventional office buildings. IOI Central Boulevard Towers is also connected to the Marina Bay District Cooling Network, which aims to reduce the district’s carbon emissions by 19,439 tonnes yearly, equivalent to removing 17,672 cars on roads. This will enable IOI Central Boulevard Towers to achieve higher energy savings and reduce the total cost of ownership, ultimately contributing positively toward Singapore’s 2050 net zero emission goal and reducing its operational impact on the environment.
The Financials
IOIPG has three major business segments: Property Development, Property Investment and Hospitality & Leisure. The revenue and segmental profits achieved by the three business segments in FY2022 and FY2023 are summarized in the table below:
RM million | 9M FY2024 | FY2023 | FY2022 |
Revenue | 2,175 | 2,593 | 2,590 |
Property Development | 1,516 | 1,881 | 2,102 |
Property Investment | 455 | 491 | 364 |
Hospitality & Leisure | 181 | 209 | 113 |
Other Operations | 6 | 13 | 11 |
| | | |
Segment Operating Profit | 568 | 706 | 1,050 |
Property Development | 339 | 498 | 912 |
Property Investment | 222 | 203 | 161 |
Hospitality & Leisure | (8) | (23) | (29) |
Other Operations | 14 | 29 | 6 |
| | | |
Core Profit Before Tax | 659 | 1,050 | 1,230 |
The drop in Property Development revenue and core profit before tax in FY2023 was due to lower sales in the PRC region.
As can be seen from the table above, IOIPG has been able to maintain steady revenue and segmental profit from Property Development in the past 3 years. Notable reduction was seen in FY2023 and 9M FY2024 revenue from the Property Development segment mainly due to lower sales registered in the PRC, a consequence of the prolonged battle with zero-Covid policy which has greatly slowed down economic transactions in the region. On the contrary, sales from Malaysian operations have shown growth by 13% in FY2023 primarily driven by robust sales uptake in the Johor region. Strong revenue in 9M FY2024 was boosted by the completion of a land sale in Senai amounting to RM211 million.
Revenue posted by the property investment segment of RM490.58 million (2022: RM364.25 million) reached a record high in FY2023, driven by strong contributions from the commencement of operations at IOI City Mall Phase 2 combined with enhanced rental yield and occupancy rates in the retail and office subsegments. Revenue from Property Investment segment increased further by 23% in 9M FY2024 primarily bolstered by the successful leasing progress of IOI City Mall Phase 2 which commenced on 25 August 2022. This has led to a gradual rise in occupancy rate and financial performance within the property investment segment.
The Group’s revenue from hospitality and leisure segment rebounded to RM209.11 million (2022: RM113.09 million) driven by strong recoveries in occupancy rates across all hotel properties. This segment’s revenue jumped up further in 9M FY2024 primarily attributable to the acquisition of W Hotel Kuala Lumpur to expand the portfolio for the hospitality sub segment and the opening of Moxy Hotel in February 2024. However, the operating loss has widened from RM2.2 million in Q3 FY2023 to RM3.4 million in Q3 FY2024. The additional operating loss is attributable to the operating loss of Moxy Hotel, mainly due to pre-operating costs and depreciation of hotel assets and the closure of the golf course for upgrading works. But over the 9 months period, segmental loss has actually reduced by half compared to FY2023.
Assets & Liabilities
In FY2023, the Group’s asset position grew by 8% to RM42.62 billion on the back of significant increases in cash and cash equivalents, mainly attributed to the sale of the Group’s completed properties with tactical and strategic sales campaigns. Secondly, the growth was bolstered by an increase in investment properties, which was predominantly due to the ongoing progress works for the IOI Central Boulevard Towers in Singapore, along with an appreciation in value of the Group’s completed investment properties resulting from the annual valuation exercise and favourable movements in foreign exchange rates.
Property development costs have shown significant increase in FY2023, of which was mainly due to commencement of active development activities for our Marina View residential project, which had previously been categorized as land held for property development.
The Group’s total liabilities increased by 7%, primarily attributed to higher borrowing position required for the construction of IOI Central Boulevard Towers in Singapore. Meanwhile, the surge in trade payables was mainly a result of accruing completion costs for completed development projects and land cost payable to a landowner under joint-development arrangement completed during the financial year.
The Group’s financial strength remains robust, consistently boasting total assets that surpass total liabilities. The Group’s net gearing ratio has improved from 0.71x to 0.68x, driven by the strong financial performance achieved in the current financial year. Furthermore, the Group’s net asset value for FY2023 stood at RM4.05 per share, representing a 9% improvement compared to the previous financial year.
As of 31 Mar 2024, the Group’s total assets increased further to RM44.1 billion while net gearing ratio inched up to 0.73x mainly due to higher capex spending in completing IOI Central Boulevard.
On-going Property Development Projects
In FY2023, the principal strategies of the property development segment were to reduce inventories and to launch mid-priced residential and commercial products at affordable price points in both Klang Valley and Johor. The focus remained on providing products that catered to real market demand, primarily meeting the growing owner-occupier market segment. Additionally, due to strong demand for industrial properties in Johor, the Group’s new launches in this region will focus on large industrial lots between 1 to 2 acres in size and also semi-detached factories with a large built-up area.
Klang Valley
The main property development projects (remaining land size and GDV) going on in the Klang Valley for IOIPG are:
· Bandar Puchong Jaya (17 acres, RM0.93b)
· IOI Resort City (293 acres, RM15.01b)
· Bandar Puteri Puchong (142 acres, RM12.26b)
· 16 Sierra, Puchong South (163 acres, RM6.49b)
· Bandar Puteri Bangi (204 acres, RM5.47b)
· Warisan Puteri, Sepang (159 acres, RM2.73b)
· IOI Industrial Park, Banting (325 acres, RM2.06b)
IOIPG has total remaining landbank of 1,303 acres in the Klang Valley with remaining GDV of RM45 billion.
Johor
The main property development projects (remaining land size and GDV) going on in Johor are:
· Bandar Putra Kulai (3,474 acres, RM4.77b)
· Bandar IOI Segamat (82 acres, RM0.49b)
· Taman Lagenda Putra, Kulai (18 acres, RM0.1b)
· Taman Kempas Utama (29 acres, RM0.77b)
· iSynergy, Bandar Putra Kulai (265 acres, RM1.79b)
· The Platino
IOIPG has total remaining landbank of 3,868 acres in Johor with remaining GDV of RM7.92 billion.
Singapore
The main property development projects (remaining GDV) going on in Singapore are:
· Seascape, Sentosa Cove (JV) (SGD0.35b)
· Cape Royale, Sentosa Cove (JV) (SGD1.14b)
· Marina View (under construction) (SGD2.58b)
The remaining landbank in Singapore and the PRC has a remaining GDV of RM14.11 billion.
All in, total remaining landbank of IOIPG stands at 5,192 acres with remaining GDV of RM67.3 billion.
Unlocking Value of Investment Properties
IOIPG owns the following commercial properties in Malaysia:
· IOI City Mall (NLA 2.5 million sf)
· IOI Mall Puchong (NLA 902,000 sf)
· IOI Mall Kulai (NLA 264,000 sf)
· Puchong Financial Corporate Centre, Bandar Puteri Puchong (NLA 883,000 sf)
· One IOI Square and Two IOI Square, IOI Resort City, Putrajaya (NLA 434,000 sf)
· IOI City Tower 1 and IOI City Tower 2, IOI Resort City, Putrajaya (NLA 967,000 sf)
· Conezion, IOI Resort City, Putrajaya (NLA 925,000 sf)
Strategically located in the heart of IOI Resort City, Putrajaya, IOI City Mall continued to see strong traction among retailers and shoppers alike. The mall holds the unique distinction of being Malaysia’s largest mall with a net lettable area (“NLA”) of 2.50 million square feet (“sq ft”).
IOI City Mall Phase 2 features the IOI Grand Exhibition and Convention Centre, a 40,000 sq ft convention centre; the largest GSC outlet in Malaysia with its first IMAX Laser Hall; IOI City Farm, the first indoor farm park in Putrajaya and District 21, an indoor adventure park. Another unique feature is IOI Sports Centre, a worldclass indoor sports facility comprising 15 badminton courts with rubber flooring, and two mini futsal courts that can be converted into a full-sized futsal arena.
A key factor for the success of IOI City Mall Phase 2 is the proficiency of the management team in effectively managing the mall’s operations while unlocking the full potential of the Group’s investment properties. Since its opening in August 2022, Phase 2 has continued to see its committed occupancy rates increase, culminating in a 98% rate achieved.
IOI City Mall is strategically positioned to attract consumers from across the Klang Valley as well as other locations such as Nilai and Seremban. It serves as the go-to entertainment hub for the local population and offers a wide range of lifestyle and recreational offerings and amenities. In addition, the mall serves as a key placemaking development for Putrajaya and the local community within its vicinity as far as Kajang and Semenyih.
In FY2023 total retail space stood at 4.30 million sq ft with a market value of RM4.93 billion, comprising 4 retail locations. Excluding the book value of RM789 million for IOI Mall Xiamen, the 3 retails malls of IOIPG in Malaysia is valued at book at around RM4.08 billion. A large portion of the portfolio comprises mature assets with a well-established brand and credible market reputation. Locations of these properties are also strategic and thus, continues to see strong market uptake in Klang Valley.
IOI City Tower 1 and IOI City Tower 2 at IOI Resort City, Putrajaya
With regard to office properties in Malaysia, the Group remains committed to obtaining GBI certification for its existing buildings. This aligns with the growing demand for such office buildings, especially from multinational corporation, government-linked companies, large corporate entities and similar organizations. Both IOI City Towers in IOI Resort City, Putrajaya are GBI certified.
As at end FY2023, the Group’s office portfolio within the property investment segment comprised office buildings namely IOI City Towers (1 & 2), Conezión, Puchong Financial Corporate Centre (1, 2, 4 & 5) and IOI Square (1 &2), with a total NLA of 3.21 million sq ft with a cumulative market value of RM1.22 billion.
The Property Investment segment registered segmental profit of RM222 million for the 9 months ended 31 Mar 2024 (9M FY2024). This segmental profit has included depreciation and amortization charges as well as interest expenses. Total depreciation and amortization charges for 9M FY2024 amounted to RM54.4 million. Added this back, operating cashflows was about RM276 million for this business segment, annualized to RM368 million. It seems that IOI Mall Xiamen profitability has gone down lately, and hence I estimate it generates a gross return on asset of about 2.3% or annual rental income of about RM18 million. Hence, I estimate that the investment properties in Malaysia generate annual operating cashflows of about RM350 million.
IOIPG could inject all these investment properties in Malaysia into a commercial REIT, call it IOIPG Commercial REIT. Malaysian large-sized REITs are trading at an average yield of 5.38% as shown in the following table:
RM million | Market Cap | Distributable Income | Current Yield (FY2023) |
KLCCP REIT | 13,430 | 691 | 5.1% |
Pavilion REIT | 5,080 | 296 | 5.8% |
IGB REIT | 6,640 | 333 | 5.0% |
Sunway REIT | 5,410 | 320 | 5.6% |
Axis REIT | 3,220 | 170 | 5.4% |
Hence, IOIPG Commercial REIT would be worth RM350m/5.38% = RM6.5 billion, higher than the combined book value of RM5.3 billion (RM4.08b + RM1.22b).
Assuming IOIPG listed up close to 50% of IOIPG Commercial REIT, it would raise cash of RM3.25 billion to IOIPG which would come in handy for paring down borrowings. IOIPG would also book in a one-off revaluation gain of RM1.2 billion upon listing of the investment properties, which would increase its shareholders’ funds and reduce group gearing ratio.
Interestingly, IOI management in a Q&A session with UOB research team on 2 July 2024 revealed that they could do a REIT for the investment properties in Malaysia and/or Singapore in 12-18 months in order to reduce gearing. They said the 3 Malaysian malls are valued at about RM4.0 billion, and their hotel assets could be valued at RM2.5 billion based on a valuation of RM1.0 million per room key for its total 2,500 hotel rooms in Malaysia. The management did not mention about the office assets in Malaysia, which are carried at book at RM1.22 billion.
Unlocking Value of Huge Landbank in Johor
Since IOIPG acquired the large landbank of 5,680 acres in Kulai in 1995, the company has developed 2,206 acres of the land into an integrated township, Bandar Putra Kulai. IOIPG had in September 2023 sold 403.78 acres of land in Kulai to Eco World at a sale consideration of RM211 million (or RM12.00 psf). Eco World subsequently sold a small piece of such land measuring 123.141 acres to Microsoft Payments for RM402.3 million (or RM75 psf). In a short span of time of just 9 months, the value of the land at Kulai has jumped up by over 6 times due to the booming of data centres in Johor.
Another developer Crescendo sold 2.63 million sf (60.37 acres) of land in Pulai to Microsoft for RM315.17 million (or RM120 psf) in November 2023. It sold an additional 1.1 million sf (25.25 acres) of land in Pulai to Microsoft for RM132.47 million (or RM120 psf) in second quarter of 2024. Crescendo recently in June 2024 completed its latest transaction, selling 20.463 acres of land in Pulai to Singapore-based data centre firm Digital Halo Pte Ltd for RM115.88 million (or RM130 psf).
The latest land transaction in early July 2024 shows that the land prices in Johor Bahru continued to hold up high when Sunway Group announced to sell two parcels of land measuring 64 acres in Sunway City Iskandar Puteri to Singapore-based Equalbase Pte Ltd for RM380 million (or RM136.30 psf) for data centre development.
Recently the land in JB-Kulai area is high in demand not only for data centre development but also for general industrial usage. AME Elite announced to purchase 3 parcels of freehold land in Mukim Kulai measuring 37.5 acres for cash consideration of RM106.168 million or RM65.00 psf. AME Elite plans to develop the piece of land into an industrial park.
IOIPG has used almost 20 years to develop 2,206 acres of land in Kulai, and assuming it reserves 900 - 2,900 acres of land there for future property development, it still has about 1,000 – 3,000 acres of land there which may potentially be monetized faster in the current data centre development rush.
At the recent land transaction price of RM75 psf to RM138 psf, 1,000 acres of such land would fetch cash proceeds of RM3.3 billion to RM6.0 billion to IOIPG over the next 3-5 years when many new data centres are expected to be developed in Johor. In the bluesky case where IOIPG could monetise 3,000 acres of its land in Kulai at RM138 psf, it would bring in handsome cash proceeds of RM18.0 billion or almost RM3.28 per share!
Property agency Zerin Properties believes Johor is poised to attract RM17 billion in new data centre investments in 2024 alone. Kenanga Investment Bank estimates that by 2035, the potential power demand for data centres in Malaysia will reach a total demand of 5,000MW. One of the earliest data centre developer, YTL Power has acquired a landbank of over 1,700 acres in Kulai for development of a 500MW green data centre park. Other large ones are the 745-acre Sedenak Tech Park (STeP) and the 509-acre Nusajaya Tech Park. Telekom Malaysia recently announced to form a JV with Singtel to develop new data centres of 64MW (first phase) at a piece of land in Pulai measuring 168,959 m2 (or 41.75 acres).
To extrapolate this, 5,000MW of new data centres would require total land area of 41.75 acres x 5,000/64 = 3,260 acres of land. IOIPG is currently one of the largest land owner in JB/Kulai region with the following remaining landbank:
· Bandar Putra Kulai – 3,474 acres
· iSynergy, Bandar Putra Kulai - 265 acres
· Taman Lagenda Putra, Kulai - 18 acres
· Taman Kempas Utama, JB - 29 acres
· Bandar IOI Segamat - 82 acres
· Taman Plentong, JB - 6 acres (b/value of RM238m or RM341psf)
· Mukim Pulai - 16 acres (b/value of RM194m or RM279psf)
· Nusa Jaya, JB - 7 acres (b/value of RM159m or RM524psf)
Total 3,907 acres
With such a vast landbank in Johor, I reckon that IOIPG can afford to release easily 100-200 acres of land every year for quick monetization if the price is attractive. The fact that Eco World sold 123 acres of the very land that IOIPG owns in Kulai to Microsoft at RM75 psf shows that the land at Kulai is very much sought after by data centre developers. When land in that area becomes scarce, land prices will shoot up further, and I believe IOIPG management would not hesitate to monetize more land if the offer price is over RM130 psf.
This is especially so for the last 3 parcels of land in Plentong, Pulai and Nusa Jaya that carry a high book value psf and do not yet have any definite development plan. Disposal of these 3 parcels of land would bring in cash proceeds of RM591 million.
IOI Central Boulevard
I think the market has under-rated the potential of IOI Central Boulevard (IOICB). It is a Grade A prime office building with 1.29 million sf of Net Lettable Area (NLA) at the heart of Singapore CBD. It will have two office blocks of 16 and 48 storeys and a seven-storey retail podium when completed. With 1.26 million sq ft of premium Grade-A office space and 30,000 sq ft of retail and F&B space, IOI Central Boulevard Towers will be the most significant new office development in the CBD since 2017 when Marina One integrated development, which includes 1.88 million sq ft of Grade-A office space, was completed.
TOP and Tenancy
IOICB has received the first phase of Temporary Occupancy Permit (TOP) in April, and obtained the second phase of TOP on 4th July 2024 according to the listing by a couple of property agents in Singapore. The final phase of TOP is expected in September 2024.
Blue-chip tenants such as Amazon and Morgan Stanley have already pre-leased 40% of the 1.26 million sq ft premium Grade-A office space at IOI Central Boulevard Towers. In July 2022, Amazon signed up for 369,000 sq ft of space, while in June 2023, Morgan Stanley was said to be relocating from Capital Square and taking up between 90,000 and 100,000 sq ft across five floors in the new office blocks. Ashley Swan, executive director of commercial leasing at Savills Singapore, considers Morgan Stanley’s move to IOI Central Boulevard Towers as the biggest office relocation of 2023.
IOI Properties says that 60% of the 30,000 sq ft retail space at IOI Central Boulevard Towers’ seven-storey podium has been taken up. Level 1 will feature various F&B and retail brands, from local fare to international cuisine. Level 2 is where the grand office lobby and main drop-off are situated. Complementing the space are three artisanal cafes, namely % Arabica, The 1872 Clipper Tea Co and Guerilla Coffee, which are ideal settings for meetings and discussions over coffee.
Its main anchor tenant has been handed over keys to perform refurbishments in its office space. Market intelligence reveals that 50% of the office NLA has been leased out with an average rent of SGD11.00-14.00 psf. IOIPG is in advanced stages of negotiation with potential clients for leasing another 20% of the office NLA. Initial rental revenue will come in early FY2025 and more meaningfully in 2H FY2025.
Sustainability and Wellness
IOI Central Boulevard Towers is designed by renowned American architectural firm Callison RTKL in collaboration with Singapore-based Architects 61, the local architectural firm that was behind the designs of other prominent office buildings in the CBD, One Raffles Quay and Asia Square.
Besides having a Green Mark Platinum rating for sustainable design, IOI Central Boulevard Towers emphasizes sustainable transport. The development is seamlessly connected to the Downtown MRT Station and to the central area cycling network through dedicated cycling paths. The building has 327 bicycle parking spaces and comprehensive end-of-trip facilities with showers, lockers and a family room.
Designed with optimal leaf coverage, biophilia and wellness in mind, IOI Central Boulevard Towers has 63,504 sq m (683,557 sq ft) of greenery, equivalent to nine football fields. Urban heat island effects have also been minimized. Green and blue spaces are utilized to enhance biodiversity, reduce cooling loads and promote ventilation. The building has achieved a high green plot ratio of 5.04, which exceeds the Green Mark recommendations for air quality, community interaction and a sense of well-being.
Working parents who need childcare facilities will have ease of mind as preschool operator Superland Montessori Pre-School at Level 4 will provide childcare facilities and programmes catering to children from infanthood to early childhood. For the convenience of tenants, the building utilizes an electronic car parking system and has facilities for 266 cars on Levels 3 and 4.
Level 7 will have a 120,000 sq ft landscaped Skypark with a 160m jogging track, the equivalent of three Olympic-sized swimming pools. On the level are also lookout decks, meeting pods, a cafe and a signature restaurant. Called Sospiri, the restaurant is a new concept by ilLido Group.
“IOI Central Boulevard Towers stands tall as a spectacular new architectural masterpiece in Singapore’s CBD,” IOI Properties’ Lee said in his speech at the topping-out ceremony in August 2023. “This is underpinned by an integrated, connected and sustainable workplace ecosystem harnessing the leading-edge technologies.”
IOI Central Boulevard, IOIPG picture, EdgeProp Singapore
According to Bloomberg report citing data from JLL, office rents in Singapore reached a 15-year high in 1Q24, defying the commercial property slump plaguing other major financial hubs. Grade A office rents at CBD rose 1.3% QoQ in 1Q24 to an average of SGD11.42psf from SGD11.27psf in 4Q23. According to the Q1 2024 report published by Corporate Locations Singapore in Jan 2024, the vacancy rate in the Downtown area where IOICB is located remains very low at only 2.5%. According to the same report, the current asking rental rate for IOICB is at SGD14-15.50psf. Given the low vacancy rate and tight office supply in CBD area, leasing and rental rate prospects remain encouraging for IOICB.
Lee added that the asking monthly rental rates at IOI Central Boulevard Towers are between $14 and $15 psf, which are at a slight premium to the average Grade-A CBD rent of $11.27 psf per month at the end of 4Q2023, according to JLL Research.
In an interview with The Edge’s City & Country, IOIPG’s CEO Mr. Lee Yeow Seng shared that the estimated market value of IOICB is SGD6bn (RM21bn). To check on this valuation, I estimate that IOICB could potentially earn gross rental income of SGD14.00/psf x 1.29m sf x 95% x 12 months = SGD206 million a year. Based on Collier’s APAC Cap Rates Q4 2023 report, the gross yield for Singapore office properties in prime location is between 3-3.5%. Using gross rental of SGD206m and a gross yield range of 3-4%, this implies IOICB’s market value could be in the range of SGD5.15–6.86bn. Based on the median rental yield of 3.5%, IOICB may be valued at SGD206m/3.5% = SGD5.9 billion.
IOICB had a carry amount of SGD3.38 billion at book as of 30 June 2023 (as stated in FY2023 Annual Report). Upon construction completion, a further amount of SGD350-600m may be capitalized by end September 2024. Hence the final book value of IOICB will be in the range of SGD3.73b to SGD4.0 billion.
In the Q&A session with UOB Research team on 2 July 2024, IOIPG management indicated that if IOICB is injected into a REIT, the lowest valuation can be SGD4.0 billion. Over the next 12-18 months, if market conditions allow, IOIPG could carry out the injection of IOICB into a REIT in Singapore when a valuation of SGD5.0b to 6.0 billion could be achieved. If that is possible, IOIPG could book in a revaluation gain of about SGD1.0-2.0 billion and raise cash proceeds of almost SGD2.5-3.0 billion. The cash proceeds would then be sufficient to fund the estimated development costs of SGD1.5 billion for Shenton House project, with the balance to pare down the debts at IOICB by half.
With the first phase of TOP obtained in April 2024, IOIPG is expected to carry out revaluation of IOICB in the current quarter Q4 FY2024 at least partially. Assuming first phase TOP covers 30% of the NLA/asset, the revaluation gain may amount to SGD300m – 600m or RM1.05 billion to RM2.1 billion in Q4 FY2024. Then in Q1 FY2025, IOIPG may recognize another revaluation gain of similar amount assuming the second phase of TOP also covers 30% of NLA.
Marina View Residences
Marina View Residences (MVR) in Singapore is undergoing design revisions for a branded residence concept in partnership with Marriott International. As a result, the launch date of the project is delayed. Under this concept, MVR’s GDV is now revised higher to SGD3.5bn from SGD2.58bn previously. The 680 units luxury apartments will now be priced at approximately SGD5,000 psf.
Recent sales in nearby luxury developments provide encouraging precedents: A penthouse at Skywaters Residences sold for $6,100 psf, and The Ritz-Carlton Residences sold two units at $5,307 psf. While these few transactions may not necessarily indicate the overall trend of the entire market, they have set a positive precedent for the Marina View project.
IOIPG acquired MVR land in Sep 2021 and has until Sep 2028 (or 84 months) to complete and fully sell the project. Assuming a launch date in 3QCY24, IOIPG will have approximately 4 years to complete and fully sell the product. Failure to fully sell the project by Sep 2028 will incur an additional ABSD (Additional Buyer’s Stamp Duty) rate of between 15-25% depending on the proportion of units sold. For illustration, let say IOIPG sells less than 90% of its units by Sep 2028, then it will incur an additional ABSD of SGD250m (i.e. 25% x land cost of SGD1.0 billion), whereas if it sells 99% of its units by Sep 2028, it will incur an additional ABSD of SGD150m (i.e. 15% x land cost of SGD1.0 billion).
IOIPG plans to launch MVR before end of 2024 with the sales gallery expected to complete by September 2024. The market is generally skeptical of the project achieving good sales given the premium price tag of SGD5,000 psf. But I believe IOIPG top management shall have the connections to the group of ultra-high net worth individuals to achieve its targeted sales of 30% in the first year of launch and another 30% sales in subsequent years. I am factoring in another 20% sales in the 3rd year of launch ended September 2027 then another 10% sales in the final year of ABSD deadline in September 2028, expecting total sales of 90% by the deadline. Hence IOIPG would incur additional ABSD penalty of SGD250 million.
As the GDV of MVR has been revised up to SGD3.5 billion, hence the land cost-GDV ratio is lowered to 28.6%, much lower than the typical 50% for other private residential high-rise projects in Singapore. Hence I think this MVR project should be able to achieve a net profit margin of 20% or higher.
Potential gross profit from MVR may be calculated at:
SGD3.5b x 90% x 20% - SGD250m = SGD380 million or RM1,330 million
This is not the final profit as IOIPG can still sell the remaining 10% units after the ABSD deadline.
The bulk of the development profit may be recognized in the 3 years from FY2026 to FY2028, hence this MVR project may contribute an average net profit of RM443 million a year to IOIPG in FY2026 to FY2028, with the balance profit of SGD70 million or RM245 million to be recognized in FY2029-2030 when the remaining 10% sales is concluded.
Shenton House Redevelopment Project
On 25 June 2024, IOIPG received a proposal from Mr. Lee Yeow Seng, the Group’s CEO and substantial shareholder, to participate in the joint development of Shenton House, a commercial property in Singapore. The proposal involves IOIPG acquiring shares in Shenton 101, wholly-owned by Mr. Lee. Given that it is a RPT, both Mr. Lee and Dato’ Lee Yeow Chor will abstain from board deliberations and voting. The proposal also likely requires shareholders’ approval given that it is a RPT and that its percentage ratio is above 5%. Shenton House is planned to be redeveloped into a mixed-use building.
Mr. Lee through his fully-owned private vehicle (Shenton 101) successfully tendered for Shenton House for a purchase consideration of SGD538m in November 2023. The intention is to redevelop Shenton House into a mixed-use development with premier Grade-A office space and luxury branded serviced residences. “Shenton House’s significance is its location in Singapore’s “first CBD”, adds Lee.
With Shenton House, the connectivity between IOI Central Boulevard Towers and Marina View has been greatly enhanced, linking the developments to four MRT stations and five MRT lines.
For instance, IOI Central Boulevard Towers has a direct underground link to the Downtown MRT Station on the Downtown Line. The underground link also connects it to the adjacent Marina Bay Link Mall, which, in turn, provides access to Raffles Place MRT Interchange Station (for the North-South and East-West Lines) and Marina Bay MRT Interchange Station (for the North-South and Circle Lines).
A series of covered link bridges across buildings on the second floor will connect IOI Central Boulevard Towers to the neighbouring office towers, One Raffles Quay and Asia Square, and the future new development at Shenton House. The future redevelopment of Shenton House will have a covered bridge linking it to UIC Building, which is, in turn, connected underground to the Shenton Way MRT Station on the Thomson-East Coast Line.
Shenton House is an office building built in the 1960s, located in Singapore’s CBD. The building spans 3,377 sqm with a gross plot ratio of 11.2 and has 44 years remaining on its lease.
Given that the building is more than 50 years old, this makes it eligible for redevelopment incentives under the Urban Redevelopment Authority's (URA) Central Business District (CBD) Incentive Scheme, which targets older buildings for transformation into mixed-use developments. Under this scheme, Shenton House is eligible for a 25% bonus gross floor area, which should increase its gross plot ratio from 11.2 to 14. Hence the redeveloped Shenton House shall have gross floor area of 503,000 sf. The plan is to redevelop Shenton House into a mixed development potentially comprising mixed-use commercial (likely office) with residential or hotel with a renewed lease of 99 years. The redevelopment works are scheduled to commence by end-2025. Post-redevelopment, the property is intended to be held as an investment property.
In addition to the original land acquisition cost of SGD538m, there is an additional capital commitment of SGD476m, encompassing land betterment premium, lease top-up premium (for lease extension to 99 years), and transaction expenses. This will bring the effective land acquisition costs to SGD1.01bn (or RM3.53bn based on SGDMYR exchange rate of 3.48). The GDV of the project was not disclosed. Plus estimated construction cost of SGD500 million, total development costs for Shenton House may amount to SGD1.5 billion.
Shenton House
In the Bursa announcement, Mr. Lee emphasized that Shenton 101 is ready and able to proceed with the development of Shenton House and is well on the way to put in place funding to enable the redevelopment. However, this proposal was extended to IOIPG to mitigate the conflict of interests as both IOIPG and Shenton 101 are involved in property development in Singapore. In addition to that, Shenton 101 is also located in close proximity to IOIPG assets, namely IOI Central Boulevard (350m away) and Marina View Residences (350m away). The proposed redevelopment of Shenton House into a mixed use of office with residential or hotel components is similar to IOI Central Boulevard and Marina View Residences, and thus, may compete with each other for a similar target market. Through participation in Shenton House redevelopment, IOIPG can mitigate this competition and conflict while extracting maximum value from these developments through careful planning on the launch timing, product pricing and marketing strategy of these products.
The plan all along might be for IOIPG to re-develop Shenton House. However, IOIPG did not participate in the acquisition last year likely due to (i) the sizeable capital commitment needed; and (ii) the tight timeline of the acquisition. Mr. Lee’s decision to purchase the property under his private vehicle and inject the property at a later date is in the interest of minority shareholders given concerns on net gearing and financial capability of IOIPG. Under the current proposal, the board will have sufficient time to deliberate and analyze on whether to participate in the project and how much stake to acquire for the project. Thereafter, shareholders also will have an opportunity to assess and vote on the proposal.
Had IOIPG management directly bidded for the Shenton House project last year and won the tender without shareholders’ approval, minority shareholders would have blamed the management on the bold decision to participate in another project in Singapore CBD which would worsen the Group’s gearing. If the management tried to seek shareholders’ approval then to participate in the tender, it would have insufficient time to organize an EGM to get shareholders’ approval and minority shareholders would have very tight timeline to deliberate on the project feasibility. So I think what Mr. Lee is doing is transparent and good for the minority shareholders, as he saw a good chance to scoop up this last major redevelopment site in Singapore CBD with his personal vehicle first, then only proposes to inject it into IOIPG at cost. Now we minority shareholders have 4 months time to deliberate on the proposal and we can make a more informed decision after getting a feasibility study report from an independent advisor to be appointed soon.
Assuming IOIPG acquires a 100% stake in Shenton 101, the acquisition cost would amount to SGD1.01bn, while net gearing is estimated to increase to 88.8% from 73.3% as at 31 Mar 2024. While there are persistent concerns among investors on the elevated net gearing level of IOIPG, I think investors should not be overly concerned about this. Firstly, IOIPG is expected to recognize substantial revaluation gains upon the completion of IOI Central Boulevard in September 2024, which should lower its net gearing. For instance, if IOICB is valued at the minimum SGD5.0 billion, IOIPG would book in a revaluation gain of SGD1.0 billion which will increase shareholders’ funds and reduce the net gearing ratio to 77% from 88.8%. A revaluation to SGD6.0 billion would lower the net gearing to 68%. Secondly, the group’s property investment and hotel assets are strong cash flow generators, which should help to service interest and debt repayments. For 9M FY2024, IOIPG registered almost RM250 million of segmental profits for its Property Investment segment. Added back depreciation charges of about RM50m, operating cashflows generated from Property Investment amounts to RM300m in 9 months, annualized to RM400 million. When IOICB is completed and tenanted out, potential gross rental income may top SGD200 million a year. Therefore, total rental income from investment properties may top RM1.0 billion a year.
Furthermore, when Shenton House is redeveloped and tenanted out, potential gross rental income may be about 503,000 sf x 80% NLA x SGD14.00 psf x 12 months = SGD68 million a year. At the same valuation of 3%-4% yield, Shenton House may be valued at SGD1.7b – SGD2.2b. Injecting Shenton House into the Singapore REIT would bring in cash proceeds of SGD850 million to SGD1.1 billion to IOIPG. This would bring down the Group’s net gearing ratio from 77% (assuming IOICB valued at SGD5.0b) further to 63%.
This Shenton House proposal may be a blessing in disguise for IOIPG for a number of reasons below:
· Minority shareholders can pressure the management to accelerate asset monetization process such as the creation of a REIT for its Malaysian investment properties or accelerate the injection of IOICB into a Singapore REIT, and try to unlock the value of its vast landbank in Johor by selling choice parcels to data centre developers at prices above RM75 psf.
· Shenton House is the last major redevelopment site in Singapore CBD, by having IOIPG to take over this project, it will avoid competition and enable IOIPG to have a more orderly roll out of commercial products in the CBD area or cross selling/ marketing with its IOICB and Marina View Residences
· When IOICB is injected 50% into a Singapore REIT at a valuation of SGD5.0b, IOIPG would raise cash proceeds of SGD2.5b. If IOIPG takes over Shenton House project and fund the estimated total development cost of SGD1.5b, it would still have cash of SGD1.0 billion to pare down borrowings. Shareholders’ fund would go up from RM22.7b to RM26.2b and net gearing ratio would reduce from 0.73x in March 2024 to 0.50x. This Shenton House proposal will take over potential competition in Singapore CBD prime office market and help IOICB to achieve 90% tenancy sooner then injection of IOICB into a Singapore REIT will occur sooner by end of 2025.
· Shenton House will become another prime investment property to IOIPG in Singapore CBD, which may provide annual rental income of SGD68m or RM238 million a year. The potential injection of Shenton House into the Singapore REIT would bring in cash proceeds of another SGD1.0 billion to IOIPG, which would reduce its net gearing ratio further. When the injection of IOICB and Shenton House into a Singapore REIT is complete, IOIPG will have received total cash proceeds of SGD2.0 billion or RM7.0 billion. That will save interest expenses of some RM350 million a year. Plus the additional rental income from Shenton House when fully tenanted out, additional profit contribution to IOIPG may amount to RM238m + RM350m = RM588 million a year.
Overall, I see positive bias to IOIPG in this Shenton House proposal in the long run. Hence I am rather puzzled with the big selldown in IOIPG share price in the few days before and after the announcement of the proposal. IOIPG share price has dropped from the RM2.50 level to a low of RM2.13 days after the proposal announcement. As this is just a proposal, not a done deal, and minority shareholders have the time and rights to deliberate on the proposal and reject it if not viable, I find the selldown totally unjustified. I see this as a good opportunity to accumulate more IOIPG shares at low prices, sharing the same view as EPF who has been buying IOIPG in the open market in past 2-3 weeks.
Potential Valuation of IOIPG
As of 31 March 2024, IOIPG had a total asset value of RM44.1 billion and shareholders’ fund of RM22.7 billion. The book value is RM4.12 per share. The current share price is trading at a low 0.52x NTA.
Revaluation of IOIPG Landbank
IOIPG has a vast size of remaining landbank for property development which is carried at a book value of RM5.53 billion as of 31 March 2024. Besides the 3,907 acres of remaining landbank in Johor as calculated above, IOIPG has remaining landbank of 1,303 acres in the Klang Valley and 18.4 acres in Negeri Sembilan and Penang. Out of these, the key landbank that has re-rating potential is highlighted below:
· 3,474 acres in Bandar Putra Kulai (book value of RM311m or RM2.06 psf)
· 265 acres in iSynergy, Kulai (book value of RM236m or RM20.49 psf)
· 358 acres in IOI Resort City (book value at RM2.09b or RM134.10 psf)
· 142 acres in Bandar Puteri Puchong (book value of RM294m or RM47.50 psf)
· 163 acres in 16 Sierra, Puchong South (book value of RM282m or RM39.70 psf)
· 325 acres in IOI Industrial Park, Banting (book value of RM229m or RM16.16 psf)
The combined 3,739 acres of landbank in Kulai could easily be rerated to a value of RM25.00 psf (based on recent land transaction price for large size land parcels of over 100 acres, eg. SP Setia completed the sale of its 388.38ha land parcel in Tebrau, Johor for RM564m or RM13.50 psf in May 2024, Eco World purchased 13 parcels of land measuring 240.314 acres in Iskandar Puteri, Johor for RM450.13m or RM43.00 psf in Jan 2024), which would give a re-rated value of RM4.07 billion or a revaluation gain of RM3.52 billion over the book value of RM547m.
Alternatively, as discussed above, IOIPG may choose to sell choice parcels of land to data centre developers at selling price of over RM100 psf when opportunities arise over next few years. IOIPG could sell off say 1,000 acres of its landbank in Kulai at say RM100 psf, which would give a re-rated value of RM4.3 billion and up to RM4.2 billion of revalued gains. The rest of 2,739 acres could be revalued to RM25.00 psf giving a rerated value of RM2.98 billion and a revalued gain of RM2.5 billion. Total revaluation gain in this case would amount to RM6.7 billion.
In a bluesky case where IOIPG managed to sell a total of 3,000 acres of land in Kulai at the highest recently transacted price of RM138 psf, it would raise cash proceeds of RM18 billion and give revalued gains of up to RM17.7 billion. The balance land of 739 acres could then re-rated to a value of RM805 million at RM25 psf, and give another revalued gain of RM527 million. So total revaluation gain in the bluesky case would amount to RM18.2 billion.
Over in Selangor, the 305 acres of land in Puchong could easily be rerated to RM135-150 psf, at least matching the book value of IOI Resort City. That would give a re-rated value of RM1.8b – RM2.0 billion, and a revalued gain of RM1.2-1.4 billion.
The 325 acres of industrial land at IOI Industrial Park could be very valuable as Selangor state government is pushing for a semiconductor hub to be established in the state. As comparison, land at Batu Kawan has been transacted close to RM80 psf or higher recently, hence the IOI Industrial Park land could easily be worth RM100 – 150 psf. That would give a re-rated value of RM1.4b – 2.1b and a revalued gain of RM1.4b to RM2.1 billion to IOIPG.
To summarise, total revaluation gain from the choice parcels of land above could be as large as RM9.3 billion in the base case and as high as RM21.7 billion in the bluesky case.
Revaluation of Investment Properties in Malaysia
As discussed above, the investment properties of IOIPG in Malaysia are ripe for injection into a commercial REIT. The 3 retails malls in Malaysia carry a total book value of RM4.08 billion and the office towers at RM1.22 billion.
As calculated above, if these retail malls and office towers are injected into a commercial REIT, they may be valued at RM6.5 billion at 5.38% yield. That would give a revaluation gain of RM1.2 billion.
The 5 hotels of IOIPG in Malaysia carry a book value of RM683 million as of 31 March 2024. Based on indication by IOIPG management in recent meeting with UOB, they estimated that the hotel assets may be worth RM2.5 billion. When the hotel business turns around and matures further, they can be injected into a hospitality REIT which may be worth RM2.5 billion. That would then give a revalued gain of RM1.8 billion.
Revaluation of IOICB and Shenton House
IOI Central Boulevard could be worth as much as SGD6.0 billion when fully tenanted and injected into a REIT in Singapore. Compared to an eventual book value of SGD3.7-4.0b, the revaluation gain could be big at SGD2.0-2.3 billion or RM7.0 – 8.0 billion.
Shenton House when re-developed and fully tenanted could be worth SGD1.7-2.2b if injected into a Singapore REIT. Against a book value of SGD1.5b, the revaluation gain could be as big as SGD0.2-0.7 billion or RM0.7-2.4 billion.
Potential Revaluation Gain to IOIPG
As calculated above, total revaluation gain could be RM21.3 billion in the base case and as high as RM33.7 billion in the bluesky case.
Current Shareholders’ fund RM22.7 billion (RM4.12 per share)
+ Revaluation Gains (base case) RM20.0 billion (+RM3.63 per share)
+ Revaluation Gains (bluesky case) RM35.1 billion (+RM6.38 per share)
Hence, IOIPG when revalued may be worth RM7.75 to RM10.50 per share. Compared to the current share price of RM2.20 level, IOIPG may be a potential 5-bagger in few years time when its assets are revalued and the proposed asset monetization exercises are realized.
Explosive Earnings Growth
IOIPG, after posting steady earnings in past few years post-pandemic, is poised to enter an era of explosive earnings growth in the next few years.
Property Development Segment
For Property Development segment, IOIPG has posted decent earnings of RM498m to RM912m in FY2019 – FY2023. The company posted segmental profit of RM369m for 9M FY2024, annualized to RM492 million. The 9M FY2024 earnings included some disposal gain for the sale of a piece of land in Kulai in Q3 FY2024.
I would assume a steady segmental profit of RM400 million a year from the property development segment, and an average of land disposal gain of RM270 million a year from the disposal of 100 acres of land in Kulai at minimum selling price of RM65 psf. So total property development profits in Malaysia may amount to RM670 million a year.
From the calculations above, Marina View Residences project is expected to deliver profit contribution of RM443 million a year in FY2026 to FY2028, thereafter another RM245m in FY2029-2030.
Property Investment Segment
For Property Investment segment, IOIPG registered total segmental profit of RM250m in 9M FY2024, annualized to RM333 million. These earnings are contributed from the existing retail malls in Malaysia and China, as well as office towers in Malaysia.
IOI Central Boulevard is expected to contribute gross rental income of about SGD100 million a year for FY2025 based on the secured 50% tenancy so far. Tenancy is expected to ramp up to close to 100% in FY2026, contributing gross rental income of SGD200 million or RM700 million a year from FY2026 onwards.
Shenton House when fully re-developed may contribute gross rental income of SGD68m or RM238 million a year from FY2028 onwards.
Hospitality & Leisure Segment
The hospitality segment should start to turn around in FY2025 and see sequential improvements ahead from (i) Moxy Hotel building its occupancy rate; (ii) completion of refurbishment of Palm Garden Hotel, Putrajaya Marriott Hotel and Palm Garden golf course which are all expected to complete in Jun-24; and (iii) contribution from newly acquired W Hotel KL (completed Feb) and Courtyard Penang (expected completion in Jun).
Based on the expected valuation of RM2.5 billion for the hospitality assets at a yield of 6.0%, the hospitality & leisure segment is expected to contribute earnings of RM150 million a year from FY2027 onwards. The scheduled opening of W Singapore luxury hotel in 2028 will spearhead further growth in hospitality earnings.
Lower Interest Expenses
Furthermore, when IOICB is injected into a REIT by end 2025 at a valuation of say SGD5.0 billion, IOIPG will raise cash proceeds of SGD2.5 billion which will be used to fund the expected development costs of Shenton House amounting to SGD1.5 billion. There will still be a balance cash of SGD1.0 billion to pare down borrowings. Then when the re-developed Shenton House is also injected into the REIT in FY2029 at a valuation of say SGD2.0 billion (as calculated above), it will bring in cash proceeds of another SGD1.0 billion to IOIPG.
When the investment properties in Malaysia is injected into a commercial REIT at a valuation of RM6.5 billion say in FY2027, it will raise cash proceeds of some RM3.2 billion to IOIPG. When they do the same for its hospitality assets which will be worth RM2.5b, it will raise cash proceeds of another RM1.2 billion.
Hence by FY2029 after all these asset injections into a REIT, IOIPG will have raised total cash proceeds of RM11.4 billion which can be used to pare down borrowings. This will enable IOIPG to save about RM570 million of interest expenses a year and increase earnings by the same amount.
Projected Earnings Growth
I summarize the projected earnings growth of IOIPG for the next few years in a table below:
For comparison, IOIPG’s peers are trading at the following valuation:
· Eco World - 20x PER
· Mah Sing - 17x PER
· Sime Darby Property - 16x PER
· SP Setia - 28x PER
· UEM Sunrise - 60x PER
Average - 28x (incl. UEMS) or 20x (excl. UEMS)
If I take the average valuation of 20x PER, IOIPG should be trading at RM3.00 in FY2024, rising to RM5.00 in FY2025 and eventually to RM10.70 by FY2028.
The projected earnings will be able to support the Sum-of-parts (SOP) valuation above (RM7.75 to RM10.50) from FY2026 onwards.
IOIPG is grossly under-valued at current prices. When IOICB is revalued close to SGD6 billion in 2025, minus out debts of SGD3 billion, IOICB alone will be worth RM10.5 billion of equity value. Plus the expected gross profit of SGD450 million or RM1.5 billion from Marina View Residences, these two Singapore projects alone are worth RM12 billion, more than IOIPG’s current market capitalization of RM11.9 billion. That means investors are getting all the other assets in Malaysia (including the largest mall in Malaysia IOI City Mall, a couple of 5-star hotels and huge landbank in Johor) of IOIPG for free!
I have already got two 5-baggers in YTL and YTL Power, both of which have risen by over 7 times since my initial recommendation in 2022. Now I am getting another potential 5-bagger in making, IOIPG will easily see its share price doubling up to RM4.00 level by 2025.
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Created by dragon328 | May 23, 2024
Jom Bet For Malaysia!
Welcome to Casino De Bursa. Bet small win small. Bet Big win Big.
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2024-07-11 22:04
FPHB is the next multibagger stock. Go read its quarter report then you will know. All its financial figures look super good on last quarter result.
2024-07-12 10:31
Constructive comments are welcome.
One comment I received privately was the projected earnings from IOI Central Boulevard. I project annual earnings of RM700 m from IOICB from FY2026, based on projected gross rental income of SGD206 million a year, which in turn was calculated from an assumed rental rate of SGD14.00 psf x 1.29 million sf x 95% x 12 months. That assumed only 95% of total 1.29 million sf of NLA is to be leased out, and hence leaves a 5% room for upside later. Furthermore, the average rental rate may have room for further upside for inflation adjustments in later years as well as for scarcity premium as there is no more major re-development site in Singapore CBD after Shenton House is won by CEO Mr. Lee.
The overhead cost for maintaining IOICB should be very low at less than 5% of gross rental income for such a big office tower.
The main cost will be electricity bill. Assuming 10% of total NLA is common area where IOICB needs to provide air-conditioning and lighting for, electricity bills may come out to 1.29 million sf x 10% x (7.5 hp /1000 sf) x 0.745 kW/hp x 16h x 365 days x SGD300/MWh = SGD1.26 million per year, rounded up to SGD1.5 million for lighting. (assumptions: 10% of NLA is common area, 7.5 hp of air-conditioning is required for every 1,000 sf of space, average electricity price of SGD300/MWh).
Other maintenance costs will be for maintenance of lifts & elevators, main facets, external paintings, quick rents and licensing fees payables to local authorities, bomba checks etc. These may not add up to more than SGD10 million a year, I estimate.
Hence I see that my assumed net earnings of SGD200 million a year from IOICB should be achievable.
2024-07-12 11:26
raymondroy
excellent writeup with historical stories and all..... can be made into a book :-) good work dragon328.... bravo
2024-07-10 17:01