CICT Preferential Offering - What should unitholders do?

What happened?

Singapore REITs have bounced significantly with rising expectations of interest rate cuts.

The fall in the Singapore T-bill yield has also led to improved sentiment towards Singapore REITs.

This has made it possible for Singapore REITs to raise capital to fund acquisitions once again.

Earlier, we shared that CapitaLand Integrated Commercial Trust (CICT) is acquiring a 50% stake in ION Orchard. 

To fund the acquisition, CICT has announced a preferential offering for existing unitholders.

If you are a CICT unitholder and wondering what you should do about the preferential offering, read on to find out!

What you need to know about CapitaLand Integrated Commercial Trust (CICT) Preferential Offering

• CapitaLand Integrated Commercial Trust (CICT) is offering shareholders the rights to buy 56 new units for every 1,000 old units, at S$2.007 each. This Preferential Offering (PO) will raise S$757.2m.
• CICT recently completed a private placement of 171.7m new units at S$2.04/unit, which raised S$350.3m. These units commenced trading on 12 Sep 2024.
• Unitholders who bought CICT on or before 9 Sep 2024 are eligible to subscribe to the Preferential Offering and to receive a distribution of between 2.11 to 2.21 cents per unit (stub distribution).
• Subscription to the rights and payment will open on 16 Sep 2024 and close on 24 Sep 2024. The new Preferential Offering units are expected to be allotted and traded from 2 Oct 2024.
• The proceeds will be used to acquire from sponsor Capitaland Investment Ltd the 50% stake in ION Orchard and ION Orchard Link, and 50% share of the property manager. This transaction is subject to unitholders’ approval at an extraordinary general meeting to be held.
• The theoretical ex-price after the placement, Preferential Offering and stub distribution is about S$2.082 per unit. At the current price of S$2.15, we would recommend unit holders to subscribe to the Preferential Offering.

The theoretical price after the placement, Preferential Offering, and stub distribution is about S$2.082 per unit

CICT recently completed a placement of 171.7m new units at S$2.04/unit to raise S$350m. These new units are not entitled to subscribe to the preferential offer.

The PO will raise S$757.2m. With the private placement, CICT will raise a total of S$1,108m from the equity fund raising exercise.

CICT will pay the distribution that accrued to unitholders from July 2024 to the placement date. Investors who bought CICT on or before 9 Sep 2024 will be entitled to this distribution (known as stub distribution) of between 2.11 and 2.21 cents per unit, and to subscribe to the Preferential Offering.

Based on the last closing price before the shares traded ex-rights of S$2.11, the theoretical price after the placement, Preferential Offering, and the stub distribution (TERP) is between S$2.082 to S$2.083 per unit.

CapitaLand Investment Ltd (CLI) undertakes to fully subscribe to its entitlement for the Preferential Offering

CapitaLand Investment has undertaken to fully subscribe to its pro-rata entitlement for the preferential offering. As at 30 Jun 2024, CLI’s stake in CICT was 23.8%. 

Total proceeds to be used for acquiring the 50% stake in ION Orchard, ION Orchard Link and the property manager of these properties

The rights issue and the recent placement exercise would raise a total of S$1,108m. 

This will be used to pay for the 50% stake in 1) ION Orchard retail mall; 2) ION Orchard Link, which is an underground pedestrian link with retail offerings, and 3) Orchard Turn Developments Pte Ltd, which is the property manager of these properties. 

The agreed property value was S$3,697m. This is within the valuation by independent property valuers of between S$3,690m and S$3,715m.

A 50% stake in these assets will cost S$1,848m. CICT will pay cash of S$1,076m raised from the equity fund raising, and take on debt, which we estimate at S$772m. Including acquisition (S$18.7m) and other fees (S$6.4m), total cash outlay is S$1,101m. 

The deal is an interested party transaction and subjected to unitholders’ approval at an EGM

The purchase consideration is S$1,076m or 7.6% of CICT’s FY23 audited NAV.

Under Chapter 9 of the Listing rules and the Property Fund Appendix, any transaction with an interested party that exceeds 5.0% of CICT’s latest audited NAV must seek unitholders’ approval at and Extraordinary General Meeting (EGM).

The EGM is expected to be held in late Oct/early Nov 2024.

The transaction will lift DPU, marginal impact on NAV and gearing

The property is acquired at a gross yield of 7.1%. This is marginally lower than CICT’s overall average retail portfolio gross turnover rent of 7.2% in FY23. 

On a pro-forma basis, the acquisition will raise distributions by S$34m in 1H24, after financing cost and savings from tax transparency rules. 1H24 pro-forma DPU will be lifted by 0.9% to 5.48 cents/unit, and FY23 pro-forma DPU by 1.2% to 10.88 cents. 

At TERP of S$2.082, this implies pro-forma annualised FY24 distribution yield of 5.26%.

CICT’s end-Dec NAV was S$2.07/unit. With the new units from placement, PO and acquisition fees, NAV is expected to ease marginally to S$2.06/unit.

The higher debt level will be offset by a bigger equity base. Aggregate leverage will rise slightly from 39.8% in 1H24 to 39.9%.

CICT retail portfolio net lettable area (NLA) will grow by 14.3%

Total NLA of ION Orchard is about 57,935 sqm, with committed occupancy rate of 96% as at end-Jun 24. It will raise CICT’s retail footprint in Singapore by 14.3% to 5m sq ft, and total portfolio NLA to 12.6m sq ft. 

CICT’s share in private retail stock in Singapore will rise to about 10% of total 50.1m sq ft. At end-23, its share was 8.6%, according to data from CBRE Research.

Total portfolio value will rise from S$24.5bn to S$26.4bn. Retail’s share of total portfolio will rise to 35%.

CLI will raise S$1,848m from the exercise

The sale proceeds of S$1,848m will allow CLI to pare down debt and recycle capital. As the REIT manager, it will also earn acquisition fee of S$18m from the transaction.

On the other hand, CLI will fork out S$180m to subscribe for its proportionate 23.8% share in the Preferential Offering. 

What would Beansprout do?

The TERP price after the close of the Preferential Offering is about S$2.082 per unit. This is below the current price of S$2.15. We would recommend CICT unitholders to subscribe to the Preferential Offering.

The acquisition would raise DPU by 0.9%, but marginally shave NAV to S$2.06/unit and raise gearing to 39.9%.

Impending interest rate cut is a strong tailwind for REITs. We expect lower interest rates from next year. This would benefit REITs through 1) lower interest cost and benefit distributions; 2) lower discount rates which could lift asset values and improve gearing.

Click here to download the full report. 

What you may do as a CapitaLand Integrated Commercial Trust (CICT) unitholder

The Preferential Offering opened on 16 September, and will close on 24 September 2024 (Tuesday).

• 16 September 2024: Opening date for the Preferential Offering
• 24 September 2024: Closing Date
• 2 October 2024: Expected date for crediting of the Preferential Offering Units and commencement of trading of the Preferential Offering Units

If you are interested to subscribe to the preferential offering, you may do so via:

• ATM (DBS, POSB, OCBC and UOB)
• Online at investors.sgx.com and remittance via PayNow: Refer to guide here
• Application Form: Refer to guide here
• Provisional Allotment Letter (PAL) issued to eligible scripholders

Please refer to this link for more information.

Related links:

• CapitaLand Integrated Commercial Trust share price history and share price target 
• CapitaLand Integrated Commercial Trust dividend history and dividend forecast 

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