Broker: UOB Kay Hian
Date of Report: 6 August 2025

CapitaLand Integrated Commercial Trust: Full Ownership of CapitaSpring Boosts Growth Prospects in Singapore’s Prime Office Market

Overview: CICT’s Strategic Acquisition and Market Position

CapitaLand Integrated Commercial Trust (CICT), Singapore’s first and largest real estate investment trust (REIT) listed on the SGX, has announced a significant move to acquire the remaining 55% stake in CapitaSpring, a premium Grade A office tower located in the heart of Raffles Place. This transformative acquisition positions CICT to further solidify its dominance in the Singapore commercial real estate market, expand its trophy asset portfolio, and enhance distribution per unit (DPU) growth for unitholders.

Key Investment Highlights

• BUY recommendation maintained with an upgraded target price of S\$2.79 (previously S\$2.72), reflecting a 24.6% upside from the current share price of S\$2.24.
• CICT’s market capitalization stands at S\$16.39 billion, with 7,317.2 million shares issued.
• Major shareholder Temasek Holdings controls 24% of the trust.
• The trust is included in the Real Estate GICS sector, and continues to outperform with a 16.1% YTD share price gain.

CapitaSpring Acquisition: Unlocking Full Value from a Trophy Asset

CICT will acquire CapitaLand Development Limited’s (CLD) 45% and Mitsubishi Estate Co’s (MEC) 10% stakes in CapitaSpring’s commercial component at an agreed property value of S\$1.9 billion (100% interest). Upon completion in Q3 2025, CICT will gain 100% ownership of this landmark asset.

• Entry Net Property Income (NPI) Yield: 4.2%
• Key Tenants: JPMorgan Chase, Millennium Capital Management, Sumitomo Mitsui Banking Corporation.
• Tenant Mix: Banking, insurance, and financial services account for 61% of gross rental income as of June 2025.
• Occupancy: 99.9% as of June 2025.
• Rental Reversion: Positive, at 5-7% in 2023-2024 and 7% in 1H25, with expectations of mid-single digit growth for the full year 2025.
• Acquisition Funding: S\$482 million, fully funded by S\$500 million from a private placement.
• Leverage Impact: Aggregate leverage rises slightly from 37.9% to 38.3%.
• DPU Accretion: The deal is expected to be DPU-accretive by 1.1% on a pro-forma basis in 1H25.

Financial Performance and Portfolio Metrics

Operational Strength: Retail and Office Resilience

• CICT delivered a sterling 1H25, with DPU rising by 3.5% year-on-year to 5.62 S cents, outperforming expectations.
• Gross revenue and NPI (Net Property Income) climbed by 1.4% and 1.7% respectively in 1H25, even after divesting 21 Collyer Quay and ongoing AEI (Asset Enhancement Initiative) at Gallileo since February 2024.
• Retail rent reversions remained strong at 7.7% (suburban: 8.8%, downtown: 6.9%), while the office segment registered 4.8%, both supported by robust tenant retention rates (retail: 81.8%, office: 76.8%).
• Cost control initiatives boosted NPI margin to 73.6% in 1H25 (up from 72.7% in 2024), with finance costs dropping by 8.7% year-on-year.
• Aggregate leverage was steady at 37.9% as of June 2025, with an interest coverage ratio of 3.3x and an average cost of debt at 3.4% in Q2 2025 (expected to remain at low-3% for the year).
• 81% of borrowings are at fixed interest rates, with a weighted average debt maturity of four years, minimizing refinancing risks.

Asset Enhancement Initiatives (AEI) and Strategic Expansion

IMM Building:

• Repositioned as Singapore’s largest outlet mall with over 100 outlet stores.
• Phase 3 AEI space handed to tenants in Q2 2025; S\$48 million capex expected to generate an 8% ROI.

Gallileo, Frankfurt:

• AEI disruptions expected to end in 4Q25, with major tenant European Central Bank (ECB) moving in and retail units opening in 1Q26.
• Gallileo’s contribution to earnings will be more significant from 2026.

Tampines Town Central Rejuvenation:

• URA’s five-year master plan for Tampines Central 5 will transform the area into a pedestrianized street and upgrade Tampines Mall’s main entrance.
• Departmental store space vacated by Isetan in Nov 2025 to be reconfigured into specialty units, with a S\$24 million capex and 7% expected ROI.

Lot One Shoppers’ Mall:

• AEI from 4Q25 to 1Q27, leveraging URA’s surplus carpark conversion for 15,000sf additional NLA.
• Basement 2 to focus on daily essentials and convenience offerings; S\$37 million capex, ROI expected above 7%.

Earnings Outlook and DPU Forecast Adjustments

• CICT has raised DPU forecasts by 1.5% for 2025 and 2.7% for 2026, factoring in the CapitaSpring acquisition and slight NPI margin expansion.
• Retail portfolio is guided to achieve mid-to-high single-digit positive rental reversions, while the office portfolio is expected to see low-to-mid single-digit gains.
• ION Orchard will provide a full-year distribution contribution in 2025, compared to only two months in 2024.

Valuation and Recommendation

• The target price of S\$2.79 is derived using a dividend discount model (cost of equity: 6.25%, terminal growth: 2.2%).
• Key catalysts include recovering shopper traffic and tenant sales at downtown malls, a rebound in tourist arrivals, increasing work-from-office trends, and ongoing asset enhancement and redevelopment.

Key Operating Metrics (Recent Quarters)

CapitaSpring: Asset Details and Strategic Significance

• Tenure: 99-year leasehold from 1 Feb 1982 (56 years remaining)
• Location: 86 & 88 Market Street, Singapore 048947 / 048948
• Operations Commenced: Nov 2021
• Land Area: 60,000 sf
• Gross Floor Area (GFA): 818,500 sf
• Net Lettable Area (NLA): 673,300 sf (Office: 661,400 sf; Retail: 11,900 sf)
• Committed Occupancy: 99.9%
• Car Park Lots: 354
• Valuation: S\$1,900 million (average of Savills and Knight Frank valuations)

Conclusion: Strong Fundamentals and Growth Path

CICT’s acquisition of CapitaSpring enhances its exposure to Singapore’s prime office market, increases portfolio value by 4.2% to S\$27 billion, and positions the trust for continued growth in DPU and NAV. With a robust balance sheet, prudent capital management, and a proactive approach to asset enhancement, CICT remains a compelling investment for yield-seeking investors looking for resilient and growing returns in the Singapore commercial real estate sector.

Disclosures and Analyst Information

This report was prepared by UOB Kay Hian analyst Jonathan Koh, CFA, MSc Econ. The analyst certifies the independence and accuracy of the report’s opinions and recommendations. For further details, investors should refer to the original disclosures and legal disclaimers from UOB Kay Hian.