This article first appeared in The Edge Malaysia Weekly on December 11, 2023 - December 17, 2023

IOI Properties Bhd signed a sale and purchase agreement last week to buy W Kuala Lumpur from Tropicana Corp Bhd for RM270 million.  However, the two companies have yet to end talks as two more assets have been put on the negotiating table.  IOI Properties is said to be keen on buying Tropicana Gardens Mall in Kota Damansara, Selangor, and Courtyard by Marriott Penang, which together are valued at between RM800 million and RM1 billion. 

Should the deal go through, it is expected to strengthen IOI Properties’ position in the hospitality and retail industry while Tropicana will have the cash to satisfy any debt obligation and assist with its cash flow requirements.

Tropicana Gardens, a seven-storey neighbourhood mall with one million sq ft of retail space, opened its doors in March 2020 while the 199-room four-star Courtyard by Marriott Penang opened for business in September the same year.

When contacted, neither IOI Properties nor Tropicana would respond to questions about the two assets.

Tropicana’s annual report for the financial year ended March 31, 2023, states that as at Dec 31, 2022, the fair value of Tropicana Gardens was RM943.6 million while that of Courtyard by Marriott Penang was RM184.64 million.

The mall is owned by Tropicana Indah Sdn Bhd, which is 70%-owned by Tropicana and 30% by Perbadanan Kemajuan Negeri Selangor (PKNS). According to a source, PKNS may want to hold on to its 30% stake in the mall.

“Courtyard by Marriott Penang is likely to be sold for about RM170 million,” an industry source says, adding that it may be sold at a small discount because the same party is looking to buy several of Tropicana’s properties.

IOI Properties’ interest in the assets is not surprising given its involvement in the retail and hotel segments. The group already operates four malls with a total net lettable area (NLA) of 4.3 million sq ft and five hotels with a total of 1,875 rooms. It has a hotel each in Malaysia, Singapore and China that are currently under construction. They will offer a total of 1,200 rooms.

Following the purchase of the five-year-old, 150-room W Kuala Lumpur located in Jalan Ampang for RM270 million, IOI Properties’ total hotel room inventory has increased to 2,025.

Moreover, all the hotels currently operated by IOI Properties and the planned openings are brands under Marriott International as are W Kuala Lumpur and Courtyard by Marriott Penang.

The Malaysian hotels owned by IOI Properties are Putrajaya Marriott Hotel (488 rooms), Le Meridien Putrajaya (353), Palm Garden Hotel, Putrajaya, a Tribute Portfolio Hotel (151 rooms) and Four Points by Sheraton Puchong (249 room). In Singapore, it has a 49.9% stake in JW-Marriott Hotel (634 rooms).

Hotels being constructed by the group include the 480-room Moxy Hotel, IOI Resort City and the 370-room Sheraton Grand Xiamen, China. Two weeks ago, IOI Properties signed a deal with Marriott International for the latter to operate the new 350-room W Singapore — Marina View.

“Retail and hotel are two sectors in which IOI Properties has particularly found success. The IOI [City] Mall in Putrajaya is now Malaysia’s largest in terms of NLA and has been a real success story for the company, especially given concerns about retail post-Covid, while the Le Meridien Putrajaya posts impressive numbers that are on a par with many KL city centre upscale hotels. These sectors fulfil the company’s objective of strengthening its property business with recurring income,” a real estate expert tells The Edge.

IOI Properties currently owns four malls, three of which are in Malaysia. The four are IOI City Mall (Phases 1 & 2) (2.5 million sq ft), IOI Mall Puchong (902,000 sq ft), IOI Mall Kulai (264,000 sq ft) and IOI Mall Xiamen, China (639,000 sq ft).

The property expert adds that given IOI Properties’ success in leasing out IOI City Mall, it may be able to do the same for Tropicana Gardens Mall’s occupancy. “Additionally, the location of the mall (in Kota Damansara) gives the company a bigger geographical spread in Greater KL, with its other two major existing properties being in Puchong and Putrajaya. He also points out that IOI Properties has a good relationship with major retailers.

Commenting on IOI Properties’ purchase of W Kuala Lumpur, LaurelCap Sdn Bhd’s executive director Stanley Toh says, “I think the purchase is a synergistic move that will benefit IOI Properties in the long run. I think the price consideration of RM270 million or RM1.8 million per room is one of the highest prices transacted in the country outside Langkawi.

“IOI Properties recently added  W Singapore — Marina View and stands to benefit from the hotel brand’s loyalty programme. Nevertheless, for IOI Properties, these properties are good assets located in prime locations. This will definitely be a good portfolio for an impending REIT listing.”

Similarly, Toh sees the Kota Damansara mall as a good buy with a real estate investment trust (REIT) potential. “The Tropicana Gardens Mall will be a good asset to acquire as it is synergistic with the other malls in IOI Properties’ portfolio. It will enhance the group’s retail properties for a potential REIT listing,” the real estate valuer-cum-estate agent adds.

In its first quarter ended Sept 30, 2023, IOI Properties had total long and short-term borrowings of RM17.6 billion while cash and bank balances and deposits amounted to RM1.35 billion, giving it a net gearing of 0.7 times.

In a filing with Bursa Malaysia, Tropicana said the disposal of W Kuala Lumpur represents an opportunity for the group to immediately unlock the value of its investment asset and provide it with a net pro forma gain on disposal of RM7.41 million.

It added that upon completion of the disposal, Tropicana will be able to improve its financial performance and realise a gain, thereby strengthening its cash flow position. It plans to use RM105 million to fully repay W Kuala Lumpur’s bank borrowings and RM164.86 million as partial repayment of the group’s existing borrowings.

As at Sept 30, Tropicana’s total borrowings stood at RM3.26 billion, of which RM2.162 billion were long-term loans while the remaining RM1.098 billion were short-term loans. Its cash and bank balances totalled RM585.5 million.

Tropicana’s net gearing (with its perpetual bonds of RM653.6 million categorised as borrowings) worked out to 0.67 times as at end-September.

Of its borrowings, RM110 million in medium-term notes and RM248 million in perpetual bonds will mature on June 7 and Sept 25, 2024, respectively.

It is worth noting that in February, Tropicana sold 10.85 acres of land in Pontian, Johor, to KSL Holdings Bhd for RM21.27 million and, in October, it sold Tropicana SJII Education Management Sdn Bhd, which owns the St Joseph’s Institution International School Malaysia, to Taiko Group. The fair value of the asset as at Dec 31, 2022, was RM189.54 million. 

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