Analysts from CGS International, OCBC Investment Research (OIR) and RHB Bank Singapore have kept their “add” and “buy” calls on CapitaLand Integrated Commercial Trust C38U (CICT) after CICT announced its intention to acquire 50% of ION Orchard on Sept 3.
In a separate announcement issued on the same day, CICT’s manager said it plans to raise $1.1 billion through a private placement and preferential offering. The private placement, which will see 171.1 million units issued, was 3.7 times covered with the issue price fixed at $2.04 on Sept 4. Another 377.3 million units will be issued under the preferential offering at $2.007 per unit.
The research team at OIR is recommending unitholders to subscribe for the preferential offering as it sees the merits of the proposed acquisition.
“ION Orchard is an iconic premium destination mall located at the heart of Singapore’s Orchard Road shopping belt,” reasons the team in its Sept 4 report.
“Based on the proposed acquisition price, the gross yield is estimated to be 7.1%. Although the net property income (NPI) yield was not disclosed, we estimate it to be around 4.9%, which in our view is a healthy figure,” it adds.
The team also sees room for ION’s NPI to grow as its committed occupancy stood at 96% as at June 30. In addition, the team believes rents at Orchard Road malls can maintain its uptrend in a soft landing environment.
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CGSI analysts Lock Mun Yee and Natalie Ong also view the deal positively as it will enable CICT to deepen its footprint in the prime Orchard Road shopping belt.
“The diverse trade offerings ranging from luxury to essential would also attract shopper footfalls from locals and tourists, and drive tenant sales,” the analysts note in their Sept 3 report.
“While no figures were offered, management indicated during its briefing that the occupancy cost for ION Orchard is below that of the downtown malls within its existing portfolio,” they add.
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The move will also “bode well” for ION’s rental outlook as the REIT manager continues to drive mall productivity through active asset management. Furthermore, rents for malls along the shopping belt are likely to remain stable or increase with limited new supply in the area.
Following the equity fund raising, CICT’s gearing would remain at a relatively stable 39.9% after the acquisition.
Morningstar analyst Xavier Lee has kept his four-star rating on CICT as he also views the move positively.
“Overall, we are positive about this move, which helps the trust to diversify its portfolio trade mix and exposes it to the luxury retail segment in Singapore,” he writes in his Sept 3 report.
“We think the trust is currently undervalued and encourage existing unitholders to subscribe for the units under the preferential offering,” he adds.
Based on his estimates, Lee sees that the acquisition will add 1% to CICT’s distributions per unit (DPU) for FY2025 to FY2026.
“The trust is working to achieve tax transparency for ION Orchard, and it expects a further 0.9% accretion to DPU when approved by the relevant authorities (and subject to the agreement of Sun Hung Kai Properties),” he notes.
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Meanwhile RHB analyst Vijay Natarajan is “neutral” on the proposal as he sees the pricing to be “slightly on the higher end”.
However, he acknowledges that the deal comes at an “opportune time” with rate cuts expected to be on the horizon.
“The REIT’s enhanced size, Singapore focus and improved liquidity post acquisition will help to propel its share price further,” he says.
In the near-term, the analyst sees room for more divestments to take place with CICT’s mature and, or non-core assets such as Bukit Panjang Plaza, 21 Collyer Quay and Citadines Raffles Place. The proceeds from these may go towards acquisitions and asset enhancements, he notes.
All the analysts have maintained their estimates. They have also target prices unchanged at $2.21, $2.32, $2.30 and $2.32 for CGSI, OIR, RHB and Morningstar respectively.
Units in CICT closed 7 cents lower or 3.29% down at $2.06 on Sept 4.
