Malaysia's IOI Properties Group has started marketing a private fund backed by S$6 billion (about US$4.7 billion) of Singapore office buildings, a move that could return roughly S$3 billion to the developer after two years of heavy buying in the city-state.

Chief Executive Lee Yeow Seng told reporters on Tuesday, Nov. 3, that South Beach Tower and IOI Central Boulevard Towers in Marina Bay would seed the vehicle and that IOI aims to launch it in the next few months, according to Mingtiandi and The Edge Malaysia. Selling 50% to 60% of the fund could raise about S$3 billion, Lee said, as reported by Mingtiandi. For investors in Asia, the plan is a large test of how much institutional money is willing to pay for prime Singapore offices at a time when the market's best buildings are close to full.

What IOI Properties is selling

Both seed assets are mature and almost fully let, Lee said, producing a yield on cost of about 4% to 5%. IOI bought out City Developments' remaining 50.1% stake in the South Beach mixed-use complex last year for S$834.2 million, according to Mingtiandi. It developed IOI Central Boulevard Towers itself and owns all of it. Tenants there include Morgan Stanley and Jane Street.

Lee said the fund could offer investors a yield of at least 3.5%, in line with prime Grade A office space in Singapore. He added that investors could also expect capital appreciation of close to 10% over five to seven years, The Edge Malaysia reported.

Marketing began about three months ago and is aimed at "a very select group of private equity firms," Lee said, according to Mingtiandi. In an October interview, he said minimum commitments would be about S$500 million, with a lockup of five to seven years, and that more Singapore assets could be added before an eventual REIT listing.

Demand for the very best Singapore space has been firm. CBRE has named IOI Central Boulevard Towers as one of the focal points of prime leasing by AI companies moving out of flexible workspace.

Paying down debt after a buying spree

The fund is one of several steps IOI has lined up to repair its balance sheet. The group wants to bring net debt down to 30% to 50% of equity over the next three to five years, from about 85% at the end of June, Lee said.

The leverage comes largely from Singapore. In April, IOI agreed to buy Asia Square Tower 2 from CapitaLand Integrated Commercial Trust for S$2.48 billion. Lee said on Tuesday that IOI remained in exclusive talks for the Capitol Kempinski Hotel and CHIJMES, a deal previously reported at about S$1 billion, according to Mingtiandi. IOI is also studying One Raffles Place in a 50:50 venture with CapitaLand Investment, and the partners are in exclusive talks with the sellers.

At home, IOI is spinning off malls, hotels and offices into IOIPG Malaysia REIT. The offer opened on Nov. 3, and the trust is scheduled to list on Bursa Malaysia on Nov. 25, raising about 2.1 billion ringgit for IOI Properties at 96 sen a unit. The REIT itself will raise no money from the offering, The Edge Malaysia reported.

IOI has also begun talks with the Singapore Exchange over a secondary listing targeted for early 2027. A general offer of a 10% stake by Vertical Capacity, the Lee family vehicle, could unlock close to 2 billion ringgit, Lee said. Of the potential cash from a 50% sale of the Singapore fund, which he put at nearly 10 billion ringgit, he said: "That would be quite significant."

Lee steps back from IOI Corp

Lee is narrowing his own focus. He stepped down from the board of sister company IOI Corp with immediate effect on Friday, Nov. 6, according to a stock exchange filing reported by The Edge Malaysia. IOI Corp said the change would let him concentrate on IOI Properties, citing the developer's significant presence in Singapore and his role as executive chairman of the new REIT.

The Lee family controls IOI Properties through Vertical Capacity, which owns 65.7% of the developer, according to The Edge Malaysia.

The next fixed date is Nov. 25, when the Malaysian REIT is due to start trading. The Singapore fund's first close, and the price private equity buyers put on South Beach Tower, will show whether IOI can get its net debt ratio below 50% on the timetable it has set.