HLIB: IOI Properties Reit move earnings-neutral
KUALA LUMPUR: IOI Properties Group Bhd's proposed real estate investment trust (Reit) exercise is largely earnings-neutral, with balance sheet gains doing most of the heavy lifting.
Hong Leong Investment Bank Bhd (HLIB) said any dilution from the asset injection is expected to be broadly offset by interest and depreciation savings, leaving the overall impact on recurring earnings minimal.
"We estimate minimal net earnings impact post-Reit listing, as the dilution from reduced ownership is broadly offset by interest and depreciation savings.
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"This assessment excludes potential Reit management and property management fees payable to IOI Properties, which could provide further upside," HLIB said in a note.
The firm estimated earnings dilution of about RM66.2 million following IOI Properties' reduced stake in the injected assets, from 100 per cent to around 60 per cent.
However, this is cushioned by projected interest savings of RM74.4 million from lower borrowings, as well as about RM30 million in depreciation savings arising from the reclassification of hotel assets.
HLIB said the tax impact is also expected to remain largely unchanged.
The firm maintained its "Buy" call on the stock, with an unchanged target price of RM4.15, citing the group's exposure to resilient Malaysia and Singapore property markets.
"Amid heightening geopolitical tensions, IOI Properties offers a compelling proxy to the resilient Malaysia and Singapore real estate markets.
"Its exposure to two stable, well-regulated markets with strong structural demand positions the group as an attractive avenue for investors seeking geographic diversification and a defensive hedge against heightened volatility in other regions, including the Middle East," it said.
IOI Properties is expected to raise about RM4.26 billion in proceeds from the Reit exercise, comprising RM2.65 billion in cash consideration funded via Reit-level borrowings and an estimated RM1.98 billion from an offer-for-sale of 2.2 billion units at an indicative price of 90 sen per unit, net of about RM36.9 million in listing-related expenses.
The group plans to inject a portfolio of retail, hotel and office assets worth RM7.58 billion into the Reit, with the listing targeted for completion by the fourth quarter of 2026.