IOI Properties accelerates capital recycling as Malaysia reit IPO set for FY27

KUALA LUMPUR: IOI Properties Group Bhd is stepping up its capital recycling strategy, with the planned listing of its Malaysian real estate investment trust (REIT) by the second quarter of the financial year 2027 (Q2 FY27) expected to unlock significant value from its mature assets and fund its next phase of growth.

Hong Leong Investment Bank (HLIB) said while the reit exercise marks a key step in crystallising asset value, it represents only the beginning of the group's wider monetisation pipeline.

"Once the Malaysian REIT is listed, focus will shift towards the monetisation of its Singapore assets, which serve as the next re-rating catalyst," HLIB said in a note.

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IOI Properties is currently building up a sizeable portfolio of prime Singapore assets, valued at over three times its Malaysian REIT portfolio, which are expected to become the next major re-rating catalyst once the domestic REIT is listed.

The group's disciplined capital strategy is underpinned by a strong track record of shareholder returns. In FY25, IOI Properties raised its dividend per share (DPS) to 8.0 sen from 5.0 sen previously, surprising investors who had anticipated higher gearing levels following the South Beach acquisition.

HLIB said the higher payout was supported by improved cash flow visibility, with the South Beach asset largely self-sustaining and generating income to service its associated debt. Operating cash flow has also strengthened with the commencement of rental income from IOI Central Boulevard Towers (ICBT).

"We think that the group is well positioned to deliver a meaningful uplift in dividends in FY27. Assuming a 10 per cent payout from the RM4.26 billion cash monetisation from the Malaysia REIT listing exercise, this would translate into a potential 8.0 sen DPS.

"In addition, assuming a similar 20 per cent payout from land sale gains, this could contribute a further 2.0 sen DPS. Combining these with an estimated normal DPS of 12 sen, total FY27 DPS could reach about 22 sen, implying a compelling dividend yield of around 5.8 per cent," HLIB said.

HLIB has also revised its valuation assumptions upwards to reflect its ongoing value-unlocking initiatives. The updated net revalued asset (RNAV) per share, up 29 sen from the FY25 base, incorporates fair value gains from key assets, including the South Beach acquisition (RM502.8 million), IOI City Mall, IOI City Towers and PFCC (RM576.2 million), alongside deferred tax reversals (RM302.9 million) following the REIT listing and hotel revaluation gains (RM200.8 million).

The bank also recognised an estimated RM2.5 billion in surplus value from ICBT, based on an assumed valuation of about S$3,950 per square foot (psf), coupled with contributions from new developments like the Melaka industrial project and gains from the Jalan Ampang land sale.

Reflecting stronger execution and clearer monetisation visibility, HLIB said the RNAV discount has been narrowed to 20 per cent from 30 per cent, on par with its RNAV discount applied for Sime Darby Property Bhd.

"As a result, our target price increases to RM5.20 from RM4.15."

With earnings forecasts unchanged, HLIB has maintained its "Buy" call on IOI Properties, citing its potential inclusion in the FTSE Bursa Malaysia KLCI as a further boost to investor appeal.

"The stock offers a compelling proxy to the resilient Malaysia and Singapore real estate markets that benefits from strong structural demand, positioning the stock as an attractive avenue for investors seeking geographic diversification and a defensive hedge against heightened volatility in other regions, including the Middle East," HLIB said.

It said IOI Properties' active asset monetisation strategy is unlocking capital to power its next phase of growth.