One key factor for Wong and Tan's optimism is the complete ownership of CapitaSpring Commercial, with CICT taking over the remaining 55% it did not previously own.
At the agreed valuation of $1.9 billion, CICT is adding to this stake at an entry NPI yield of 4%, in line with core CBD Grade A valuations.
Wong and Tan point out that CapitaSpring will see "substantial" renewals of anchor leases in the coming 2026 and 2027, with expiring rent ranging between $12.50 and $13 psf per month. Given the "very limited" new supply of CBD space, CICT should enjoy "sustainable" rent reversions of the asset.
The acquisition, which was announced on Aug 5, is set for completion in the current 3QFY2025. The total outlay of $482.3 million is to be fully funded with equity while taking entity-level loans at 2.7% debt cost. On a pro forma 1HFY2025 basis, accretion is at 1.1%, and aggregate leverage to remain at a "comfortable" 38.3% upon completion.
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"The transaction reinforces CICT’s long-term growth and portfolio value enhancement strategy, marking a strong portfolio reconstitution move via a Grade A CBD office offering higher rental visibility and entry NPI yield," state Wong and Tan, who expect the CapitaSpring deal to help with a "strong" 3% y-o-y uplift to CICT's FY2026 DPU.
CapitaSpring aside, the analysts see CICT enjoying well-staggered growth drivers over 3-5 years. They expect CICT's portfolio reversions to be maintained at mid-single digits for both retail and office assets.
Apart from organic growth drivers, completion of asset enhancement initiatives at other CICT portfolio constituents, such as IMM, Lot One and Tampines Mall, are well staggered for completion between now and the end of FY2026, supporting growth visibility over the medium term.
"The unwinding of tax transparency at ION Orchard in our view will be the icing on the cake, which is still at a negotiation stage," they add.
While CICT's portfolio is predominantly Singapore-based, it has overseas assets too. In Frankfurt, CICT owns an office building called the Gallileo, which is leased to the European Central Bank. Following enhancement works, there will be renewed income contribution from the asset towards the end of FY2025.
Wong and Tan are now expecting CICT to pay a DPU of 10.9 cents for FY2025 and 11.3 cents for FY2026, having taken into account the consolidation of CapitaSpring; equity fund raising and acquisition fees in units and a lower average borrowing costs of 15 bps for FY2025 to reflect lower CapitaSpring entity-level debt.
Their new target price of $2.50 implies a target FY2025 yield of 4.5%.
