IOI Properties' REIT arm seen with 12.5% upside; TA Securities sets fair value at RM1.08

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IOI Properties REIT has potential upside

Highlights

TA Securities sets a fair value of RM1.08 for IOIPG Malaysia REIT, with projected income distribution of 6.47 sen and potential upside of 12.5%.
IOIPG Malaysia REIT trades at a price-to-net asset value ratio of 1.1 times and a P/E of 16 times, below the average for major peers.
The initial portfolio is valued at RM7.66 billion; the IPO is expected to raise RM2.1 billion for IOI Properties, with a market capitalisation of RM5.3 billion after listing.

This article was translated from the original. Read the original version by our correspondent here.

Valuation basis and earnings projections

As reported by The Edge Malaysia, TA Securities has set a fair value of RM1.08 per unit for IOIPG Malaysia REIT, based on a target yield of 6% and projected income distribution per unit of 6.47 sen for calendar year 2027. The research firm said the trust offers a projected yield of 6.6% for the financial year ending 31 Dec 2027, above the 6.2% average for major mall REITs such as Sunway REIT, IGB REIT, Pavilion REIT and KLCCP Stapled Group.

According to a TA Securities note on Friday, the target yield is based on a 200-basis-point spread over the 4% target for 10-year MGS, in line with the KL REIT Index's five-year average spread over 10-year MGS. IOIPG Malaysia REIT also trades at a price-to-net asset value ratio of 1.1 times and a price-to-earnings ratio of 16 times, below peer averages of 1.35 times and 19.4 times, respectively.

TA Securities believes the valuation is also supported by the quality of its assets, particularly IOI City Mall, and the potential to expand the portfolio through acquisitions of properties owned by the sponsor. On earnings, the firm projects annual growth of around 4% in income distribution per unit in FY2028 and FY2029, supported by rental revisions of 5% to 6% at IOI City Mall, a retail occupancy rate of around 97%, an office occupancy rate approaching 90% and a blended net property income margin of around 68.5%.

Portfolio scale and market implications

The initial IOIPG Malaysia REIT portfolio comprises nine properties led by IOI City Mall, along with six hotels operating under Marriott International's family of brands and two office properties. The portfolio has a combined value of RM7.66 billion.

The trust will carry RM2.65 billion in debt upon listing and has first-priority rights over selected properties held by the sponsor, creating a potential pipeline for future portfolio expansion. The IPO is expected to raise RM2.1 billion for IOI Properties, the REIT's sponsor, while the trust itself will not raise any capital from the offering.

Based on the IPO price, IOIPG Malaysia REIT is expected to have a market capitalisation of RM5.3 billion. This scale positions the trust as a significant player in Malaysia's retail and diversified REIT segments, as investors assess its combination of yield, asset quality and growth potential following the listing.

IOI Properties Group's aggressive expansion in Singapore's commercial property market was covered in an earlier article, including exclusive negotiations to acquire Chijmes and the Capitol Kempinski hotel, as well as efforts to add other key assets to strengthen its portfolio. The article also examined how the group plans to manage leverage pressures by setting up a new private fund, while maintaining its focus on premium commercial assets as a growth driver.

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