MARC Ratings has affirmed its AAIS rating on Fortune Premiere Sdn Bhd’s RM3.0 billion Multi-Currency Islamic Medium-Term Notes Programme (Sukuk Murabahah). The rating outlook is stable. Fortune Premiere is a wholly-owned funding vehicle of IOI Properties Group Berhad (IOI Properties). The rating reflects the credit strength of IOI Properties which has provided an unconditional and irrevocable guarantee on the programme.
IOI Properties’ well established market position and lengthy track record in property development, underpinned by low land costs that have afforded healthy margins, are key rating drivers. Key moderating factors are the potential increase in leverage from increased borrowings mainly to fund asset acquisitions, and the fairly high inventory level that has weighed on profitability.
IOI Properties acquired two hotels, W Kuala Lumpur in February 2024 and Courtyard by Marriott Penang in July 2024, for a combined RM435 million. Additionally, the group is completing the acquisition of Tropicana Gardens Mall by 1Q2025 for RM680 million. The acquisition of the mall will further enlarge IOI Properties’ current investment property portfolio that consists of several malls, office buildings, and hotels in Malaysia, Singapore, and Xiamen, China. MARC Ratings’ concerns on the largely debt-funded acquisitions are allayed by the increase in recurrent cash flows from strong occupancy levels (excluding domestic office buildings) that has resulted in property investment accounting for 22.0% of total revenue of RM2.9 billion in fiscal year 2024, up from 18.9% in the previous year. Combined with the hotels and leisure segment, non-property development revenue accounts for a third of group revenue. The total net lettable area (NLA) of its malls will increase to a sizeable 5.3 million sq ft on adding the 1.0 million sq ft of Tropicana Gardens Mall. Of its office buildings, the recently completed IOI Central Boulevard Towers in Singapore with NLA of 1.29 million sq ft is projected to generate rental income of SGD135 million p.a. on a targeted 80% occupancy by year end.
Ongoing domestic projects, which are primarily in its existing townships, carried a combined gross development value (GDV) of RM3.6 billion as at end-June 2024 (FY2024), of which 54% are landed residential developments and the rest are mainly high-rise residential projects launched in 1H2024. The average take-up rate for landed projects (excluding recent launches in 1H2024) of about 69% underscores the resilient demand for landed units. Completed inventories have continued to decline over the past two years, although these have remained relatively elevated at RM1.9 billion as at end-June 2024, 60% of which are accounted for by domestic completed units with the remainder by residential units in its projects in Xiamen, China. Mitigating holding costs are the low breakeven levels for IOI Properties’ domestic projects due to low land costs.
The group’s exposure to the challenging residential property market conditions in China has impacted the sales of its IOI Palm International Parkhouse in Xiamen; the outstanding unsold residential units was worth RM622 million as at end-FY2024 following a write-down of RM227.8 million. The rating agency notes that the group’s non-residential projects in Xiamen have fared well: its IOI Mall Xiamen recorded 88% occupancy while the 371,000 sq ft IOI Business Park office building — which was completed in July 2024 — has secured 100% occupancy. Its 370-room Sheraton Grand Xiamen Jimei hotel is anticipated to be completed by 1Q2025.
For the financial year ended June 30, 2024 (FY2024), the 13.4% y-o-y growth in revenue to RM2.9 billion was largely driven by income from property investment. Correspondingly, OPBITDA was 10.5% higher at RM830.1 million. The group’s upward earnings trajectory continued in 1QFY2025, with revenue and OPBITDA growing by 6.1% and 30.9% y-o-y to RM687.9 million and RM247.4 million.
Borrowings were lower at RM18.2 billion as at end-1QFY2025 (end-FY2024: RM19.2 billion), mainly due to the stronger Malaysian ringgit vis-à-vis the Singapore dollar. Projects in Singapore, the Marina View (residential/hotel) and the IOI Central Boulevard Towers (office), accounted for about 70% of total borrowings. The Marina View project, near the IOI Central Boulevard Towers, is anticipated to be completed by 2H2028. The high-end residential component with an estimated 683 units and GDV of SGD3.6 billion would be launched in the near term. Proceeds from the sales will address this project’s associated borrowings. The loan related to the IOI Central Boulevard Towers development has been refinanced for five years from mid-2024.
Over the near term, borrowings are projected to increase, mainly to fund the domestic investment property asset acquisitions and the construction cost for the Marina View project. Pro forma debt-to-equity ratio would rise to about 0.85x (FY2024: 0.79x). Following this, the rating agency understands that there will not be any significant increase in borrowings and draws comfort from the fact that the borrowings have been mainly utilised to construct investment properties and acquire completed assets with strong income-generating prospects. The outstanding under the rated sukuk programme currently stands at RM1.4 billion.