CapitaLand Integrated Commercial Trust's (CICT) manager announced on Sept 3 that it is proposing to acquire 50% of ION Orchard at an agreed property value of $1,848.5 million.
CapitaLand Investment (CLI) will divest its 50% interest in ION Orchard to CICT. ION Orchard is currently held in a joint venture with Sun Hung Kai Properties holding the remaining 50%.
The agreed property value is within the range of two independent valuations of ION Orchard, separately commissioned by the trustee and the manager of CICT. On a pro forma basis, assuming CICT had held and operated ION Orchard from Jan 1 to June 30, the distribution per unit (DPU) accretion is expected to be 0.9%.
Based on CapitaLand Investment's FY2023 annual report, the rental revenue of ION was $263 million. Assuming a net property income (NPI) margin of around 65%, the NPI yield works out at 4.6%. JP Morgan says"1H2024/FY2023 NPI margin for CICT’s retail properties were 72.2%/69.5% respectively." ION's NPI yield compares with a yield of 4.8% of NEX when acquired by Frasers Centrepoint Trust J69U , 4.8% for Jurong Point when acquired by Link REIT, and the divestment of Changi City Point at 4.6%.
ION Orchard, connected to an MRT Interchange, needs no introduction. Orchard Turn was acquired by CapitaLand and Sun Hung Kai back in 2005 for $1.38 billion. In 2006, Penta-Ocean was contracted to develop the site into a 50-floor residential tower and ION for $478 million. ION was last valued at $3.39 billion as at Dec 31, 2023.
CICT's manager plans to raise $1.1 billion to pay for ION from a combination of a placement and a preferential offer to unitholders. The private placement comprises 171,737,000 new units to institutional and other investors at an issue price of between $2.038 and $2.091 per unit, to raise $350.0 million. The preferential offer comprises 377.3 million new units at an issue price of $2.007 per unit, in the ratio of 56 preferential offering units for every 1,000 existing units held by eligible unitholders to raise $757.2 million.
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The proposed acquisition will be subject to the approval of CICT’s unitholders at an extraordinary general meeting to be convened.
CICT's 1HFY2024 DPU was 5.43 cents, giving an annualised DPU yield of 5.1%. Following the acquisition, the pro forma aggregate leverage moves a tad higher to 39.9%.
"With increasing tourist arrivals and rising retail rents on Orchard Road, we are well-positioned to leverage the favourable supply and demand dynamics and capitalise on the tailwinds in downtown retail, including the ongoing rejuvenation of Orchard Road," says Teo Swee Lian, chairman of CICT's manager.
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"This DPU-accretive acquisition will further strengthen CICT’s market position as the proxy for high quality Singapore commercial real estate, creating greater value for our unitholders," says Tony Tan, CEO of CICT's manager. According to Tan, CICT will "collaborate closely" with Sun Hung Kai Properties, which owns the other half of ION Orchard, to continue delivering exceptional shopper experiences, driving operational excellence, and unlocking more growth potential for ION Orchard.”
Assuming unit holders give their go ahead, the proposed acquisition is likely to be be completed in 4Q2024.
