GuocoLand and IOI Properties should pool assets worth S$12.5 billion for a Singapore office-led Reit

Leverage softer interest rates and the clamour for premier assets 

[SINGAPORE]  GuocoLand’s  : F17 -0.99% share price has rallied strongly in the year to date – up 47 per cent as at Wednesday (Oct 29). 

Investors seem unperturbed by the group’s 48 per cent drop in net profit to S$32.4 million for the six months ended Jun 30, from S$62.4 million in the corresponding period a year ago.

Perhaps GuocoLand is conservative in recognising an allowance for foreseeable losses of S$81.8 million for development properties in Chongqing, China, in its latest results. 

Might some of this provision be unnecessary if China’s housing market improves?

Importantly, the group is paying a first and final dividend of S$0.07 per share for its 2025 financial year ended Jun 30, up from the dividend per share of S$0.06 per for FY2024.

Despite the share price surge, GuocoLand trades at a deep discount to its book value. As at Wednesday, GuocoLand’s share price of S$2.15 was at a discount of 45 per cent to its end-June net asset value per share of S$3.90.

Two condo projects in which GuocoLand is involved – Penrith in Queenstown and Faber Residences in Clementi – sold 97 per cent and 86 per cent of their total inventories, respectively, at their launches in October. 

Could further strength in the new condo market here drive further share price improvement?

Reit idea

Arguably, what will drive a significant rerating in GuocoLand’s share price going forward is the launch of a Singapore-listed real estate investment trust (Reit). 

Such a move would help the group to make its balance sheet more capital-efficient, grow fund-management income and unlock value for investors.

Amid softer interest rates, new Reit listing activities on the local bourse have picked up. And investors are rewarding groups that embrace Reits.

Think of  Centurion Corporation  : OU8 -0.72%, which sponsored the listing of  – a trust owning worker accommodation and student housing assets. Or  Boustead Singapore  : F9D -0.56%, which is working to list UI Boustead Reit, whose portfolio will include logistics and industrial properties.

GuocoLand’s track record in Singapore is strong. It consistently draws robust take-up for its various condo launches and has built a reputation as a builder of high-quality homes. The group has also developed two major integrated developments here – Guoco Tower in Tanjong Pagar and Guoco Midtown in the Beach Road area – whose Grade-A office spaces have been well-received by users.

Between FY2016 and FY2025, the group’s recurring income grew by a compound annual growth rate of 33 per cent.

If GuocoLand lists a Reit here, it should aspire to launch a trust that will rank among the leading Reits.

In the Reit space, owning a sizeable portfolio of top-grade assets matters. A trust comprising the office and retail components of Guoco Tower and Guoco Midtown ticks the box on asset quality.

The valuations of the commercial components of Guoco Tower and Guoco Midtown as at end-June were about S$2.82 billion and S$2.24 billion, respectively, giving a respectable combined portfolio valuation exceeding S$5 billion.

Add in the five-star Sofitel City Centre in Tanjong Pagar, which has 223 rooms and suites, and the portfolio size could be around S$5.5 billion. 

Assuming the above potential Reit trades at 0.8 times of book value or more, much value is created for GuocoLand’s shareholders, as the market today is implicitly valuing investment properties that the group owns at under 0.6 times of book value. 

Still, a potential GuocoLand Singapore commercial-centric Reit would look far more attractive if significantly bulked up. 

Partnering IOI

Malaysian tycoon Quek Leng Chan, who is GuocoLand’s chairman and substantial shareholder, should explore collaborating with fellow Malaysian tycoons Lee Yeow Chor and Lee Yeow Seng – substantial shareholders of Bursa-listed IOI Properties – to launch a mega Singapore-focused commercial-centric Reit here. 

Brothers Lee Yeow Chor and Lee Yeow Seng are non-executive director and group chief executive officer, respectively, of IOI Properties. 

IOI Properties recently took full control of South Beach’s commercial and hotel components – including retail space, a 34-storey Grade-A office tower and the JW Marriott Hotel Singapore South Beach – by purchasing  City Developments Limited’s  : C09 -1.13% share in the mixed development at Beach Road, based on an agreed property value for a 100 per cent interest of S$2.75 billion.  

IOI Properties is also the developer and owner of IOI Central Boulevard Towers, a major integrated development comprising Grade-A office towers and a retail podium at Marina Bay, with about 1.3 million square feet of net lettable area, that was completed in 2024. 

The carrying amount of this property as at end-June was over RM13.7 billion (S$4.2 billion).

By working together, GuocoLand and IOI Properties could launch a Singapore office-centric Reit, with retail and hotel components, that has a portfolio value of about S$12.5 billion.

In perspective, a portfolio size of around S$12.5 billion is not far off the S$16.8 billion of investment properties as at end-June that leading trust  CapitaLand Ascendas Reit  : A17U +0.36% had, and more than Singapore office-centric  Keppel Reit’s  : K71U 0% portfolio of S$9.5 billion of commercial assets as at end-September.  

Softer interest rates are buoying investor interest in Reits. Meanwhile, demand for premier office space in the Republic is well-supported. 

All this bodes well for launching a Singapore Grade-A office-centric Reit.

While negotiating partnership terms are invariably tricky, GuocoLand and IOI Properties would reap rich rewards if they were to team up and launch a locally listed Reit comprising premier Singapore commercial and hotel assets soon.