Central Boulevard to drive IOI Properties' earnings

KUALA LUMPUR: IOI Properties Group Bhd's medium-term earnings outlook is expected to be driven by strong recurring income growth from existing property assets while the listing of its investment properties into a real estate investment trust (REIT) will be a share price catalyst in the longer term, said RHB Research.

Following a recent virtual meeting with IOI Properties' management, the research firm said IOI Central Boulevard is likely to have a 50% committed tenancy in Singapore.

The management is targeting a tenancy of more than 80% upon the office tower's reopening and rental commencement in early 2024.

"Although management did not confirm this during our recent virtual meeting, it was reported that Morgan Stanley is in advanced discussion to take up five floors (about 100k sqf) in Central Boulevard, which would be completed by end-2023.

"Including Amazon, which according to media reports had signed a lease for about 369k sqf in the building, we estimate the committed tenancy to be at the 50% level," it said.

RHB said it believes the occupancy rate should be enough to cover the expected interest rate expense to be incurred for the underlying loan.

Meanwhile, the research firm said IOI Properties property asset portfolio may have RM19-20bil in value, including Central Boulevard.

It said the listing of these assets in Malaysia should make it the largest REIT in the country by far, followed by KLCC Stapled, which has an asset size of about RM16bil as at FY22.

For 4QFY23, RHB expects slower property sales contribution from China and Singapore.

It said the group will concentrate on winding down the unsold completed units in China over the next one to two years, as the country experiences slower-than-expected growth post re-opening of its economy.

Singapore will launch Marina View in October 2023 but management is preparing to record slower sales due to the recent stamp duty hike.

"However, as the construction works and marketing efforts progress, sales are expected to pick up – similar to the trend of its South Beach Residences in the past," said RHB.

The research firm remains said IOI Properties remains its top sector pick as the recent share price volatility is expected to be short-lived, with a recovery expected in the third quarter of 2023.

It maintained "buy" on the stock with a target price of RM1.46.