IOIProp’s bargain asset purchases to spur growth

PETALING JAYA: IOI Properties Group Bhd’s (IOIProp) second acquisition of a hotel from Tropicana Corp Bhd is deemed to be a bargain due to the attractive prices being sold.

IOIProp said it was acquiring Courtyard by Marriott Penang from Tropicana for RM165mil, following its earlier acquisition of W Hotel in KL for RM270mil in December 2023.

“Both the W Hotel and Courtyard were acquired at attractive prices. W Hotel, with 150 rooms completed in 2018, was acquired for RM270mil or RM1.8mil per room, reflecting a 25.8% discount from the original development cost of RM364mil,” Hong Leong Investment Bank Research (HLIB Research) said.

It added that Courtyard Hotel, with 199 rooms completed in 2020, was acquired for RM165mil or RM829,000 per room, marking a 10.6% discount from its book value of RM184.6mil.

“W Hotel’s transaction is set for completion by March 2024, while Courtyard is expected to conclude in the next three to six months. All IOIProp’s hotels including existing and newly acquired ones are under the Marriott International brand.

“Thus, leveraging on its longstanding relationship with the brand, IOIProp could likely negotiate favourable terms, including fees for the two new hotels,” the research house said.

HLIB Research expects W Hotel to start contributing to IOIProp’s earnings from the fourth quarter of financial year 2024 (4Q24) onwards, while Courtyard should start contributing from FY25 onwards.

The research house expects a turnaround and strong recovery from the second half of its financial year ending June 30, 2024 (2H24) onwards, supported by the completion of Palm Garden’s refurbishment in November 2023 and Putrajaya Marriott’s gradual reopening.

In addition, IOIProp should also see higher revenue from higher room rates post-refurbishment of hotels and strong recovery in tourist arrivals augurs well for occupancy and room rates; while the addition of new hotels will help boost its financial performance.

Overall, the group’s hotel assets will significantly increase from 1,876 to 3,075 rooms this year with the addition of Moxy, Sheraton Grand, W Hotel KL and Courtyard.

While there are concerns on IOIProp’s gearing level of 69.9% as of 1Q24, the research house is not overly alarmed.

The research house anticipated the completion of IOI Central Boulevard will lower its gearing to a palatable level of between 51.4% and 57.1% due to widening asset base from revaluation gains, while anticipated strong cashflow from an annual revenue likely surpassing RM600mil, should help to service debt repayment.

“Additionally, a significant portion (81%) of the group’s debt is denominated in the Singapore dollar, mostly with floating rates. Given the expected easing of interest rates in Singapore, aligning with the rate cuts in the United States, the group’s interest repayments are anticipated to ease accordingly,” it added.

HLIB Research believes that IOIProp is well-positioned for more aggressive expansion ahead on the back of economic recovery and spurred by its new property investment assets, including IOI City Mall Phase 2 and IOI Central Boulevard.

It is maintaining its forecasts and “buy” recommendation but with a higher target price of RM2.95 based on 50% discount to its estimated revised net asset value of RM5.91.

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