Over the past six months, IOI Properties shares have surged by around 50% to close at RM1.77 ($0.51) on Oct 18. In contrast, many listed developers here have traded sideways at best. Rather than press on this distinction, CEO Lee Yeow Seng diplomatically points out that different property companies are going through different phases. Some might be taking a hit from the valuation of their London assets; others may be hurt because of exposure in China and Hong Kong.
Despite the recent gain, IOI Properties’ share price is still at 0.44x of its NAV per share of RM4.05 as at June 30. Lee prefers to focus on how he can create value for shareholders rather than lamenting about this gap.
With the completion of IOI Central Boulevard Towers, IOI Properties will stand to collect an annual income of around $200 million, estimates Lee. This will add significantly to the company’s revenue from investment properties, which stood at RM491 million in FY2023, up from RM364 million in FY2022. As a proportion of total revenue, that’s an increase from around 14% to nearly a fifth. With this additional cash flow, the company will be able to reduce its gearing, which stands at 67.5% as at June 30.
More interestingly, the company will have a good platform to recycle its capital via a Singapore-listed office REIT, which will also include IOI Properties’ share of South Beach Tower. City Developments, if it wants to put its share in the REIT, will be a bonus, but IOI Properties can go ahead alone, says Lee. “It is about time we unlock value for our shareholders,” he adds.
Lee believes that a REIT listed in Singapore makes sense because this is an asset class readily understood by investors here. Upon completion of IOI Central Boulevard Towers, IOI’s logo will claim its spot in the Singapore CBD skyline. This improved visibility — both figuratively and literally — will presumably lead to better recognition among investors too.
He disagrees with suggestions that IOI Central Boulevard Towers is too new to be included in a REIT. Some REIT managers figure they need to let a particular asset “stabilise” first — with at least one leasing cycle of three years — before selling the asset into a REIT. Not so from Lee’s perspective. “If I can lock in at $15, I am happy to leave something behind on the table for other investors,” says Lee, referring to the rental rates and upside he is projecting from leasing out IOI Central Boulevard Towers.
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Besides the office REIT, Lee is potentially securitising some of the mall and hospitality assets in Malaysia too. As for IOI Properties itself, Lee will keep its primary listing in Malaysia.
Based on Bloomberg data, IOI Properties is viewed positively by all seven analysts covering the stock. “FY2024 represents an important execution year for IOI Properties given the execution for two of its largest projects, namely the commencement of IOI Central Boulevard Towers and the launch of Marina View Residences,” writes Hong Leong Investment Bank analyst Tan Kai Shuen, the most bullish with his RM2.48 price target, raised from RM2.10 previously.
In his Oct 5 report, Tan notes that IOI Properties is on track to achieve new records among Malaysian developers from the more than RM10 billion in gross development value (GDV) of new projects to be launched. With an impending RM20 billion portfolio of investment properties following the addition of IOI Central Boulevard Towers, IOI Properties would be overtaking KLCC REIT which owns RM15.7 billion worth as at June 30.
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The “vastly” expanded investment property portfolio, says Tan, will give IOI Properties a heavier, steadier stream of recurring cash flow to fund expansion at a faster pace than the traditional develop and sell method. “We see FY2024 as the pivot point as the group enters into a new phase of growth which should propel it to new heights,” he adds.
And of course, IOI Properties is active in China too, where it has undertaken numerous projects in Xiamen, a key city of Fujian province, where the Lee family can trace its ancestry. As widely reported, China’s property market is in a steep downturn because of the tough lending curbing measures introduced by the government, which was induced into a further drop when the pandemic happened.
Sensing that the cooling might have gone overboard, the Chinese government has allowed some loosening but the downward momentum will take a lot more to wrestle back up. Citing the “very serious structural” change already inflicted, Lee warns that this downturn will not be over soon. “It is not going to be so simple this time,” he figures, adding that things might become worse before the eventual recovery. If there’s one silver lining, it might be that China will learn not to be too fixated on properties in the future. And for now, there are no new plans for further investments in China.
Meanwhile, IOI Properties remains very active in its home market Malaysia, where it, in Lee’s own words, maintains its best team — including long-serving colleagues trained personally by his father over the years.
Last year, IOI Properties opened the second phase of a key project IOI City Mall. With this addition, the company further marks its position as a leading developer and operator of shopping malls in Southeast Asia. For the second phase, many interesting new tenants such as Swiss Watch Gallery, carrying a range of famous brands, as well as fashion brand Michael Kors have been brought in. For the third phase, Lee plans to go even more upmarket by bringing in brands such as those in the LVMH stable.
Thanks partly to government support, consumer confidence remains buoyant, as can be seen from footfall and tenant sales, especially when news of the next round of handouts was out. “You only need to announce a handout of RM5,000 and they will spend RM10,000. Malaysians in general are always very optimistic,” says Lee. “As landlords, of course, we are very happy because we take a percentage of their turnover.”
