On Aug 6, CapitaLand Integrated Commercial Trust’s (CICT) manager announced it had upsized its private placement to $600 million, priced at $2.11 per unit, and 284.361 million units will be issued. The issue was 4.9 times covered.
Around $466.5 million (which is equivalent to approximately 77.7% of the gross proceeds of the private placement) will be used to finance the proposed acquisition of the remaining 55% interest in the office and retail component of CapitaSpring.
On Aug 5, CICT’s manager announced the proposed acquisition of the 55% of CapitaSpring it doesn’t own from CapitaLand Development (CLD) and Mitsubishi Estate Co (MEC). CLD and MEC own 45% and 10% of Glory Office Trust, which holds CapitaSpring.
The agreed property value on 100% basis is $1.9 billion, which is the average of two valuations done by Knight Frank and Savills appointed by the manager and the trustee respectively.
“We understand that the cap rates assumed by the two appraisers in this latest valuations are compressed by five to 10 basis points compared to the valuation assumptions in December 2024, from 3.75% to 3.65% and 3.7%. The entry yield is approximately 4.2% based on 1HFY2025 net property income (NPI),” says Tan Choon Siang, CEO of CICT’s manager.
CapitaSpring has maintained almost full occupancy as at June 30. “The proposed acquisition aligns with our strategic goal to deepen our presence in Singapore, our core market. With this move, our Singapore exposure will increase from 94% to 95% reinforcing our commitment to deliver long term value and resilience to our unit holders,” Tan says.
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The acquisition will provide a 0.9% pro forma distribution per unit (DPU) accretion and with pro forma gearing at 37.9% instead of 38.3% based on the upsized private placement.
The placement has been upsized to $600 million priced at $2.11, translating into 47 million more units than initial assumptions.
Tan says that the acquisition depends on the opportunity, the timing and market conditions. The cost of funding has fallen with three-month Sora falling from 3% on Jan 2 to 1.84% as of Aug 1. CICT units have rallied and are trading at tighter yields and above NAV which makes it easier to issue units which are not dilutive.
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The call option expires in November 2026, five years from the TOP in November 2021. The call option comes with a creep, so the close it gets to expiration the higher the acquisition price is.
“The closer we get to the option expiry, the more the more our hands are tied, because most people know the transaction will require equity fundraising, because the transaction size is fairly significant. If we leave too little room towards the option expiry, the overhang will be a lot more significant, as the market will be expecting the transaction, in which case it makes it harder for us to do the transaction as well,” Tan elaborates.
Interestingly, the first of CapitaSpring’s three anchors’ leases expires in 2027.
"We view the deal positively given that the move will increase CICT’s exposure to the resilient Singapore prime office market," CLSA says in an update.
In 1HFY2025, CICT reported a 3.5% rise in DPU to 5.62 cents. DPU growth was underpinned by the full six-month contribution from ION Orchard, better performance of the existing portfolio, as well as lower interest expenses. Aggregate leverage improved to 37.9% down 0.6 percentage points (ppts) from end 2024. Average cost of debt declined to 3.4% from 3.6% six months ago.
Investors will be relieved to hear that Tan’s focus is strengthening CICT’s portfolio in Singapore, mainly through AEIs.
When asked how strategic CICT’s 2% of assets in Germany are and whether there are plans to scale up, Tan quickly responds with “We won’t scale up.”
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Overseas, the worst appears to be over for Gallileo, a Grade A property in Frankfurt’s CBD, is undergoing AEI. The new tenant, the European Central Bank, will be moving in progressively in 3Q2025. Tan says the ECB will move in, in two phases, and Gallileo’s income will start to contribute to NPI in 2026 rather than this year.
Following the completion of the asset enhancement initiative (AEI) at IMM Building, CICT plans to undertake two more AEIs. CICT plans to rejuvenate the main entrance and refresh tenant mix at Tampines Mall. The exercise, costing $24 million, is scheduled to take place from 4Q2025 to 3Q2026.
CICT also announced plans to add 15,000 sq ft of lettable area at Lot One Shoppers Mall through conversion of carpark spaces over 4Q2025 to 1Q2027. Tampines Mall's AEI is expected to yield an ROI of approximately 7%, while Lot One AEI is expected to yield an ROI of above 7%.
CICT’s NPI margin was 73.6% in 1HFY2025, higher compared with 72.7% for FY2024, caused by the improvement to effective cost control and economies of scale from CICT’s focus on Singapore.
Finance costs declined 8.7% y-o-y. Aggregate leverage was stable at 37.9% as of end-June. Interest coverage ratio was 3.3 times. The average cost of debt was 3.4% in 2QFY2025, down 0.2 ppt compared with 4QFY2024.
The cost of debt is likely to be around 3.2% this year after factoring in the new loan to acquire the 55% stake in CapitaSpring which is likely to cost 2.7%. About 81% of the REIT’s borrowings are at fixed interest rates. The average term to maturity is four years, which reduces refinancing risks in any single year.
Based on Bloomberg, nine analysts updated their review of CICT, with Citigroup the only neutral rating among them. CGS International has an add rating with a target of $2.35. UOB Kay Hian has a buy rating and a target of $2.79. CICT’s annualised DPU yield was around 5% before the placement.
