Newly-acquired W Hotel to start contributing to IOI Properties from Q4 2024, Courtyard from FY2025

KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB) expects the acquisitions of W Hotel and Courtyard to contribute to IOI Properties Group Bhd's earnings from the fourth quarter of the financial year 2024 (4QFY24) and FY25 respectively.

"Both the W Hotel and Courtyard were acquired at appealing prices. W Hotel, featuring 150 rooms completed in 2018, was purchased for RM270 million (RM1.8 million per room), representing a 25.8 per cent discount from the original development cost of RM364 million.

"Courtyard, boasting 199 rooms completed in 2020, was acquired for RM165 million (RM829,000 per room), indicating a 10.6 per cent discount from its book value of RM184.6 million," it added.

The transaction for W Hotel is scheduled for completion by March 2024, while the Courtyard is expected to conclude in the next three to six months.

All hotels under IOI Properties, both existing and newly-acquired, will fall under the Marriott International brand.

HLIB expressed optimism about the outlook for IOI Properties, anticipating a robust recovery in the second half of the financial year 2024.

This will be supported by factors such as the completion of Palm Garden's refurbishment, gradual reopening of Putrajaya Marriott, higher room rates post-refurbishment, a strong rebound in tourist arrivals boosting both occupancy and room rates, and the addition of new hotels.

"IOI Properties' hotel assets are expected to see a substantial increase from 1,876 to 3,075 rooms in the calendar year 2024," said HLIB.

Despite apprehensions regarding IOI Properties' expansion due to its high net gearing level of 69.9 per cent in the first quarter of the financial year 2024 (1QFY24), HLIB said investors should not be overly concerned for various reasons.

"Firstly, upon the completion of IOI Central Boulevard (IOICB), the group is expected to realise significant revaluation gains, estimated to be between RM5-8 billion.

"This is projected to substantially reduce the net gearing to a more acceptable level of 51.4-57.1 per cent," it added. 

HLIB said IOI Properties is expected to produce robust cash flow, with an annual revenue exceeding RM600 million, which is anticipated to facilitate debt repayment from an operational standpoint.

HLIB kept its projections unchanged pending the release of the upcoming results and a "Buy" recommendation on IOI Properties, with an increased target price of RM2.95, up from RM2.50.