Analysts are in favour of the merger between CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust (CCT) that will create a diversified commercial REIT named CapitaLand Integrated Commercial Trust (CICT).

The proposed merger is planned to be carried out through a trust scheme of arrangement.

UOB KayHian says CICT will become the largest REIT in Singapore and the second largest REIT in the Asia Pacific region.

This will enable CICT to take on large-scale integrated developments.

The brokerage notes that CICT potentially has large development headroom of $5.8 billion, assuming unitholders approve a higher cap of 15% for redevelopment of existing buildings.

“CICT will become the best proxy for S-REITs,” UOBKH analyst Jonathan Koh writes in a note dated Sept 7.

Meanwhile, DBS Group Research says the proposed merger will drive improved diversification and scale, which have yet to be priced in.

The brokerage notes that CMT is down about 20% since the start of the year.

By comparison, the top 10 Singapore REITs by market cap are now on average back to the prices at the beginning of the year.

DBS says it believes the underperformance is unwarranted given CMT’s diversified portfolio coupled with dominant properties in the respective submarkets of office and retail in Singapore.

“Over time, we expect CICT to reclaim its premium over peers as it restarts its growth engines post the Covid-19 pandemic to deliver higher distributions to unitholders,” DBS analyst Derek Tan and the research team write in a Sept 9 report.

UOBKH has maintained its “buy” rating for CMT with an unchanged target price of $2.55.

It has also retained its “hold” call for CCT with an unchanged target price of $1.66.

DBS has kept its “buy” recommendation for CMT with an unchanged target price of $2.40.

As at 10.34 am, CMT was up 1 cent or 0.5% at $1.96 with 2.4 million shares changed hands.

CCT was down 1 cent or 0.6% at $1.67 with 2.9 million shares changed hands.