Simons Trading Research

Author: simonsg   |   Latest post: Tue, 13 Dec 2022, 10:52 AM


CapitaLand Integrated Commercial Trust - Partnering COREF to Acquire 79 Robinson Road

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  • We view CapitaLand Integrated Commercial Trust's acquisition of a 70% stake in 79 Robinson Road positively as its NPI yield of 4% is attractive for Grade A office properties in prime locations. The property is well located in close proximity to Tanjong Pagar, Prince Edward and Shenton Way MRT stations and has a diversified blue chip tenant base.
  • This is a small acquisition that increases AUM by 3.9%. It is accretive to pro forma 2021 DPU by 2.9%. CapitaLand Integrated Commercial Trust's distribution yield is attractive at 5.4% for 2023.

CapitaLand Integrated Commercial Trust (CICT) Is Expanding in Home Base Singapore

  • CapitaLand Integrated Commercial Trust (SGX:C38U) and CapitaLand Open End Real Estate Fund (COREF), a discretionary fund managed by CapitaLand, plan to acquire 70% and 30% respectively of 79 Robinson Road (previously known as CPF Building), a Grade A office building located at the Tanjong Pagar sub-market of the CBD. The agreed property value is S$1,260m or S$2,423psf.

79 Robinson Road (previously Known as CPF Building)

  • Well served by three MRT lines. 79 Robinson Road will have underground access to Tanjong Pagar MRT station in the future. It is in close proximity to Prince Edward MRT station on the Circle Line (stage 6 to commence operations in 2026) and Shenton Way MRT station on the Thomson-East Coast Line (stage 3 to commence operations in 2022).
  • Well-diversified blue chip tenant base. Occupancy was 92.9% as of end-Dec 21. Its top three tenants are Allianz (insurance), Equinix Asia Pacific (financial services) and Boston Consulting Group (other office trades), which accounted for 48% of gross rental income as of end-Dec 21. The property has long weighted average lease expiry (WALE) of 5.8 years and there is minimal lease expiry for the next three years. The leases have built-in rental escalation at low-to-mid single digit. Net property income (NPI) yield is 4% based on annualised NPI for Jan 22. Management sees potential upside to improve NPI yield by leasing out the remaining vacant office space.

Acquisition Is Yield Accretive

  • The acquisition will raise US$1.0b-1.5b after a three-year build-out period.

Benefitting From the Easing of COVID-19 Restrictions

  • Singapore has made the decisive shift to a new phase of living with COVID-19 as an endemic. Groups of up to 10 fully vaccinated persons will be allowed to dine in at F&B establishments, including hawker centres and coffee shops, compared with the existing limit of five. The current restriction on the sale and consumption of alcohol after 10.30pm will also be lifted. F&B is the largest contributor and accounted for 19.9% of CapitaLand Integrated Commercial Trust’s gross rental income on a group-wide basis in 2021.
  • Up to 75% of employees can now return to the workplace, an increase from the current limit of 50%. This will improve physical occupancy at CapitaLand Integrated Commercial Trust’s office properties and increase shopper traffic at its downtown malls.

CapitaLand Integrated Commercial Trust - Earnings Forecast Revision & Recommendation

  • This is a small Dividend Discount Model (cost of equity: 6.0%, terminal growth: 1.2%).
  • Catalysts:
    • Steady recovery in shopper traffic and tenant sales with progressive easing of social distancing measures after the Omicron variant wave has subsided.
    • Asset enhancement and redevelopment of existing properties.

Source: UOB Kay Hian Research - 28 Mar 2022

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