IOI Properties eyes Singapore's Asia Square Tower in major reit push

KUALA LUMPUR: IOI Properties Group Bhd (IOIPG) is moving to acquire Asia Square Tower 2 (AST2) as part of a broader push to scale up its planned real estate investment trust (reit) platform, a listing analysts say could rank among the largest in recent years.

The counter has seen active trading since the group unveiled plans recently to list a reit comprising retail, office and hotel assets in Malaysia valued at RM7.58 billion.

In a bourse filing, the group outlined plans to inject a portfolio of Malaysian properties, including IOI City Mall and IOI City Park, into the proposed trust, IOIPG Malaysia Reit on Bursa Malaysia's Main Market with a potential to raise roughly RM2 billion.

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Shares in IOIPG have surged almost 115 per cent over the past 12 months, lifting its market capitalisation to RM21.2 billion.

Hong Leong Investment Bank (HLIB) said the planned reit listing marks an initial step in unlocking value from IOIPG's Malaysian assets, but the larger re-rating catalyst lies in its Singapore portfolio, which is more than three times bigger.

"This is further underpinned by a structural upcycle in the Singapore office market, with tight supply and strong demand supporting the future rental reversion at ICBT," HLIB said in a recent note this month.


HLIB previously highlighted IOIPG is also exploring a potential Singapore REIT (S-reit) comprising IOI Central Boulevard Towers (ICBT) and South Beach, citing tax efficiency as a key advantage. S-reits are exempt from corporate tax if they distribute at least 90 per cent of taxable income to unitholders, compared with Singapore's 17 per cent corporate tax rate under conventional structures.

HLIB added that the recent successful launch of a private commercial real estate fund by HongKong Land on February 3 (S$8.2 billion) in Singapore suggests that investor appetite for high-quality commercial real estate is also present within the private capital market.

"As such, this indicates that there is an additional potential avenue for IOIPG to monetise its assets, offering greater flexibility in optimising the value of its Singapore commercial portfolio," HLIB said.

Expanding Singapore's Portfolio

IOIPG is part of the wider IOI empire spanning property and palm oil, led by brothers Datuk Lee Yeow Chor and Datuk Lee Yeow Seng, who recently ranked third on Forbes' Malaysia Rich List published last week with a combined net worth of US$8.5 billion.

The group already holds a significant footprint in Singapore and counts IOI Central Boulevard Towers (ICBT) among its flagship assets in Marina Bay.

Last year it acquired the remaining 50.1 per cent stake in South Beach, a mixed-use complex, from billionaire Kwek Leng Beng's City Developments Ltd for about S$2.75 billion, further cementing its position as one of the largest landlords in the city-state.

The group now plans to acquire AST2, a commercial asset in Marina Bay from CapitaLand Integrated Commercial Trust (CICT) for S$2.48 billion. The 773,000 sq ft development comprises office, hotel and retail components.

CICT, Singapore's largest reit, is divesting the property at a 9.9 per cent premium to its end-2024 market valuation of about S$2.25 billion.

IOIPG noted that the agreed price of S$2.48 billion reflects a S$50 million discount to an independent valuation conducted by Savills on April 13.

The transaction, expected to be completed in the second half of the year, will be executed via a put-and-call option agreement between the trustee of CapitaLand Commercial Trust, a sub-trust of CICT, and IOI Marina View, a wholly owned subsidiary of IOIPG.

HLIB said for IOIPG, the successful launching of S-reit depends on several factors, including maturity of assets, tax savings and lift in accounting earnings, as well as interest rate and public market appetite on yield assets.

It said the first consideration is the maturity of the underlying assets, as this will anchor the valuation of the portfolio to be injected into the reit.

For IOIPG, the South Beach assets, which are estimated to account for close to 40 per cent of the potential reit pipeline value, are already mature and income-generating and, therefore, ready for potential injection.

In contrast, ICBT was only completed in December 2024 and ideally should go through at least one rental reversion cycle before being monetised in order to maximise its value, it noted.

"To illustrate this point, based on a net lettable area (NLA) of 1.2 million square ft, assuming an average rental of S$13 per square ft (psf) and an NPI margin of 80 per cent, the resulting annual NPI is estimated at S$157.2 million.

"To value the asset, we apply a cap rate of 3.15 per cent. This cap rate is consistent with the valuation applied to Marina Bay Financial Centre (MBFC), which is located in close proximity to ICBT within the core CBD area and therefore serves as a reasonable comparable.

Based on this, the estimated asset valuation is S$4.99 billion or S$3,962 psf. We think this valuation is achievable by end-financial year 2027 (FY26) when the asset is fully occupied," HLIB said.

HLIB says ICBT will go through its first round of major rental reversion in CY28. Assuming the average rental increases to S$15 psf, then applying the same cap rate results in a valuation of S$5.76 billion or S$4,571 psf.

"We think this valuation is achievable by end-FY29. Hence, by allowing the asset to go through one round of rental reversion, its valuation can potentially improve by +15.4 per cent in two years' time from FY27 to FY29," HLIB said.