SINGAPORE - CapitaLand Integrated Commercial Trust (CICT) is proposing to acquire a 50 per cent interest in Ion Orchard and its connecting underpass, Orchard Link, from its sponsor CapitaLand Investment (CLI).

Based on 50 per cent of the agreed property value, which amounts to $1.85 billion, the total outlay for the deal is estimated to stand at $1.1 billion after also factoring in transaction-related expenses, as well as adjustments for 50 per cent of a secured bank loan taken out by Ion Orchard.

On Sept 3, CICT said it intends to finance the transaction with net proceeds from a private placement and pro rata non-renounceable preferential offering to raise gross proceeds of at least $1.1 billion.

A pro rata non-renounceable preferential offering allows existing shareholders to purchase additional CICT shares in proportion to their current ownership. However, these share may not be traded or sold.

The issue price for both parts of the fund-raising exercise is estimated to fall between $2.038 and $2.091 for each private placement unit, and $2.007 for each preferential unit.

The private placement issue price range represents a discount of between 2 per cent and 4.5 per cent to CICT’s volume-weighted average price (VWAP) of $2.1338 per unit based on its last full market trading day before the announcement.

The preferential offering issue price represents a discount of about 5.9 per cent to the same per-unit VWAP.

CLI has provided an irrevocable undertaking to fully subscribe to its entitlement under the preferential offering.

A ‘transformational move’

Mr Tony Tan, chief executive of CICT’s manager, expects the proposed acquisition to be completed in the fourth quarter of 2024, assuming unit holders vote to approve the deal.

Mr Tan said the transaction is a “transformational move” in CICT’s strategy, and will pave the way for a diverse trade mix that will enable the trust to “capture the luxury retail segment in Singapore, leveraging the spending power of domestic and international consumers, while benefitting from resilient spending on necessity goods and services across economic cycles”.

Ion Orchard is currently held in CLI’s 50:50 joint venture with Sun Hung Kai Properties, a property developer and operator in Hong Kong.

The eight-storey mall has a total net lettable area of about 57,935 sq m and a committed occupancy rate of 96 per cent as at end-June 2024. It is part of an integrated development that also comprises a 56-storey condominium.

Tenants of Ion Orchard are made up of a mix of about 300 international and local brands across the luxury and necessity retail segments.

CICT’s manager highlighted the mall’s “iconic architecture”, and that it attracts millions of local and foreign visitors annually. It also said Ion Orchard Link serves as a “vital connection that links Ion Orchard to other parts of Orchard Road”.

With traits such as these in mind, it believes adding the property to CICT’s portfolio will give the trust more brands and tenants in the luxury segment in Singapore, in turn enhancing overall portfolio resilience.

CICT’s manager added that acquiring Ion Orchard would consolidate the trust’s retail presence in a “tightly held” downtown precinct.

Immediate DPU accretion

The acquisition is expected to be immediately accretive to CICT’s distribution per unit (DPU), while keeping the trust’s leverage ratio relatively stable at 39.9 per cent versus 39.8 per cent currently.

Assuming that CICT had held and operated Ion Orchard from Jan 1 to June 30, 2024, CICT’s first half of fiscal year 2024 DPU would have been 5.48 cents instead of 5.43 cents – representing DPU accretion of 0.9 per cent.

“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 unit holders,” added Mr Tan.

Separately, CLI’s group chief executive Lee Chee Koon said the company’s divestment of Ion Orchard to CICT is testament to CLI’s “strong sponsor support” for CICT.

Divestment proceeds will be used to further diversify CLI’s portfolio across geographies and asset classes, as well as establish new fund products to boost the group’s fee-related income, he added.

“This transaction also demonstrates the disciplined execution of our asset-light strategy to recycle quality assets from our balance sheet and grow CLI’s funds under management,” said Lee.

Shares of CLI closed at $2.78 on Sept 3, up 3.35 per cent.

CICT requested a trading halt on Sept 2 before the market opened. Its units closed up 0.5 per cent at $2.13 on Sept 2. THE BUSINESS TIMES