KUALA LUMPUR (July 23): IOI Properties Group Bhd (KL:IOIPG) is continuing its buying spree with the purchase of Tropicana Gardens Mall in Petaling Jaya for RM680 million cash, from Tropicana Indah Sdn Bhd -- a 70%-owned indirect subsidiary of Tropicana Corp Bhd (KL:TROP).
Perbadanan Kemajuan Negeri Selangor (PKNS) owns the remaining 30% in Tropicana Indah.
This marks its third acquisition over the last eight months. All in, IOI Properties has bought three assets worth a total of RM1.115 billion from Tropicana Corp.
The developer, which has expanded its presence in the retail and hospitality industries at fast pace, bought W Kuala Lumpur Hotel for RM270 million in February and Courtyard by Mariott Penang for RM165 million in July, according to IOI Properties’ filing with Bursa Malaysia.
In addition, IOI Properties has also purchased two parcels of freehold land measuring 9.86 acres in Pantai Kok, Teluk Burau, Langkawi from Pantai Kok Resort Development Sdn Bhd for RM90.1 million. The controlling shareholder of Pantai Kok Resort Development is Tropicana Corp founder and group executive vice chairman Tan Sri Tan Chee Sing, with a 77.3% stake while his five children collectively own a 22.7% stake.
Tan owns 19.23% direct and 33.1% indirect stake in Tropicana Corp.
The purchase consideration for the acquisitions will be satisfied by cash through a combination of internal funds and/or bank borrowings, said IOI Properties.
Its buying spree may not stop soon given that IOI Properties last month received a proposal from its chief executive officer cum major shareholder Lee Yeow Seng to acquire his private vehicle Shenton 101 Pte Ltd for the redevelopment of Shenton House.
Lee, whose family controls a 65.67% stake in IOI Properties, has proposed that the listed company acquire all or part of Shenton 101, his private vehicle that secured the commercial property in Singapore for S$538 million (RM1.9 billion) in a tender, according to a bourse filing.
Shenton 101 was the sole bidder of Shenton House, which is located in Singapore's central business district. Lee previously said he felt it was more appropriate to bid for Shenton House via his private vehicle due to the size of the subject and the tight timing set by the sales committee on the collective sale.
IOI Properties' balance sheet as at March 31 showed that total borrowings amounted to RM18.85 billion, of which RM9.46 billion was short-term borrowings, against total equity of RM22.8 billion, while its cash balance totalled RM1.126 billion plus short-term fund of RM997.8 million.
The latest filing with the exchange confirms The Edge’s article titled “IOI Properties on shopping spree, eyes Tropicana Corp’s retail and hospitality assets” in mid-December last year. The Edge then wrote that IOI Properties was said to be keen on buying Tropicana Gardens Mall in Kota Damansara, and Courtyard by Marriott Penang, which together are valued at between RM800 million and RM1 billion.
The seven-storey Tropicana Gardens Mall, which is near Kota Damansara, has a total gross floor area of 2.95 million square feet and a net lettable area (NLA) of 1.05 million square feet with an occupancy rate of approximately 77%.
IOI Properties said its total retail NLA will be enlarged to 5.4 million square feet with the addition of Tropicana Gardens Mall.
The latest acquisition would expand its mall operations within the Greater Klang Valley, complementing its two existing malls in the area, namely IOI Mall Puchong and IOI City Mall, Putrajaya. The other two malls that it currently owns are IOI Mall in Kulai and IOI Mall Xiamen in China.
“Aside from its prime location and its excellent value propositions, Tropicana Gardens Mall has been in operation for the past four years since its opening in March 2020. The group believes that it will provide a strong recurring income as it follows the successful model of IOI Malls and leverages on its brand in providing a vibrant lifestyle experience filled with dynamic offerings,” said Lee in a statement.
A loss-making sale to slash gearing ratio
In a separate statement, Tropicana Corp said the divestment is expected to result in an estimated net pro forma loss on disposal of RM267 million given that the building cost of the shopping mall amounted to RM867.28 million. The land cost was RM2.72 million.
The developer noted that the transaction aligns with its ongoing strategic initiatives to monetise its low-yielding landbanks and investment properties, providing the financial flexibility necessary to support future growth.
Proceeds from the sale will be used to substantially reduce the group’s debt, thereby improving its cash flow position and reducing interest expenses, it said.
As a result of these disposals, Tropicana Corp’s pro forma gearing ratio is expected to drop from 0.54 times as at end-Dec 2023 to 0.39 times.
As at March 31, Tropicana Corp’s total borrowings stood at RM2.86 billion, including short-term borrowings of RM1.18 billion, down from RM3.16 billion as at end-2023, against total equity of RM5.79 billion. Its cash balance amounted to RM468.2 million and other investments of RM201 million.
With the ongoing disposal initiatives, the group’s gearing will continue to decline and its financial position will strengthen.
Tropicana said the group is confident it will continue to strengthen its market presence and contribute to its future earnings supported by high unbilled sales of RM2.4 billion and strong take-up for ongoing projects.
“This sale also marks Tropicana's efforts to maintain financial discipline and enhance our financial stability. With substantial strategic landbanks across Klang Valley, Johor, and Genting Highlands, Tropicana has the flexibility to reposition its asset and debt portfolios effectively,” it added.
“To spur growth, we plan to roll out exciting residential or commercial developments across Malaysia, with an estimated gross development value of (GDV) of RM4 billion. We expect our financial position to strengthen with the upcoming handover of six vacant possessions this year from Tropicana Aman, Tropicana Miyu, Tropicana Metropark, and Tropicana Uplands,” it further added.
On Tuesday, IOI Properties' share price rose six sen or 2.8% to RM2.17, valuing the group at RM11.95 billion. Tropicana’s share price gained five sen to RM1.76, bringing the group a market capitalisation of RM4.04 billion. Both counters are trading at multi-year highs.