MARC Ratings has affirmed its rating of AAIS 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 funding vehicle of IOI Properties Group Berhad (IOI Properties) which has provided an unconditional and irrevocable guarantee on the programme.
IOI Properties’ entrenched position and longstanding track record in property development, low land costs for its domestic projects, and strong cash flow generation remain key rating drivers. Key moderating factors to the rating are the relatively high inventory level and potential softening of the property market.
As at end-June 2023 (FY2023), ongoing domestic projects had a gross development value (GDV) of RM1.6 billion, of which around 54% are landed residential and the remaining are primarily high-rise residential where sales, particularly in the Klang Valley, have been modest. The high-rise residential segment recorded an average take-up rate of around 49% compared to the 69% for the landed projects where demand has been more resilient. MARC Ratings draws comfort from generally low breakeven levels of its domestic projects within its townships, attributable to low land cost. Domestic unbilled sales for ongoing projects stood at around RM403 million as at end-June 2023.
MARC Ratings notes that the group has strengthened its property investment portfolio. Its key ongoing investment property project, the Grade A IOI Central Boulevard Towers office development in Singapore’s Central Business District (CBD) — comprising two towers with an estimated 1.28 million sq ft of net lettable area — is targeted for completion by end-1Q2024. The group has secured around 40% tenancy as at end-June 2023 and expects to secure more tenancies in the near term. The rating agency views rental prospects as strong given the consistently high occupancy rates of above 95% and the restriction of new supply of Grade A office space in the CBD. The project is expected to generate annual rental income of around SGD118 million (RM414 million) on the assumption of 70% occupancy.
Domestically, the group’s major investment properties — three malls, three office buildings, and four hotel properties — have generally improved their occupancy levels. Occupancy rates for its established malls such as IOI City Mall (Phase 1) and IOI Mall Puchong have remained above 90%; its only foreign mall, located in Xiamen, People’s Republic of China (PRC), has also recorded more than 90% occupancy.
Group inventory stood higher at RM2.7 billion as at end-1QFY2024 (end-FY2023: RM2.4 billion) with the increase coming from the reclassification of certain investment properties and land parcels valued at a combined RM466.4 million; of the outstanding inventory, around 57% is accounted for by domestic projects, while the remainder is from the Xiamen project due to the PRC’s soft property market.
For FY2023, group revenue was flat y-o-y at RM2.6 billion while operating profit declined by 21.7% y-o-y to RM687.8 million, due in part to lower sales contribution from Xiamen. For 1QFY2024, the group recorded revenue and operating profit of RM648.0 million and RM171.9 million.
Borrowings stood at RM17.6 billion as at end-September 2023, which are largely for IOI Central Boulevard Towers and the ongoing new project Marina View. The latter is a mixed-development project in the vicinity of the IOI Central Boulevard Towers; it commenced construction in August 2023 and is expected to be completed within five years. The high-end residential component with an estimated 683 units and GDV of SGD2.6 billion is targeted to be launched in the near term; proceeds from the sales will address this project’s associated borrowings.
Debt-to-equity (DE) and net DE ratios were unchanged y-o-y, standing at 0.79x and 0.70x as at end-September 2023. The rating agency takes comfort from the fact that the majority of the borrowings are project-linked, with the projects anticipated to generate meaningful cash flow over the near-to-medium term. IOI Properties maintains sizeable liquidity, with cash balances of RM2.0 billion and available credit lines including unutilised under the rated sukuk programme and undrawn unrated SGD2.0 billion Euro Medium-Term Notes (EMTN) Programme. The outstanding under the rated sukuk programme stood at RM1.4 billion as of end-November 2023.