Excerpts from Maybank report

CapitaLand Integrated Commercial Trust (SGX: C38U)

Topline growth more than offsets higher funding cost

• CapitaLand Integrated Commercial Trust (CICT)  reported 2H DPU of 5.45cts, +1.7% YoY. FY DPU of 10.75cts, +1.6% YoY was c.1% below cons./our est.
• Organic growth and full-year contribution of acquired assets was partially offset by higher borrowing costs.
• Occupancy rose while retail reversions gained strength. Singapore supported portfolio value. Focus is on asset enhancements (AEI) and proactive portfolio management.

We lift DPU estimates and combined with a lower discount rate, raise our DDM-based TP to SGD2.10. Maintain BUY.

Proactive portfolio and prudent cost management

2H revenue and NPI of SGD785.2 and SGD563.6m was c. +4% YoY. FY revenue and NPI of SGD1,559.9 and SGD1115.9m was +8.2% and +7% YoY, respectively.

Growth for 2H was led by higher rents and occupancies. Meanwhile, prudent cost management maintained operating jaws. Contribution from prior acquisitions also contributed to full year growth.

All-in funding cost rose 20bps HoH/70bps YoY to 3.5%. Guide is for funding cost to be in “mid 3%” range. Valuation rose 1.2%, led by gains in Singapore which more than offset continued weakness in overseas offices in Australia and Germany.

As such, gearing inched down to 39.9% (3Q 40.8%).

Steady operations; focus on asset enhancements

Occupancy was stable QoQ at 97.3%. Frictional vacancies in local malls and lower occupancy in German offices was offset by higher occupancy in Singapore and Australian offices and integrated developments.

Office reversion came in at +9%, relatively steady vs. 3Q while retail reversions gained strength at +8.5% for full year (7.8% for 9M). However, tenant sales growth moderated to 1.8% YoY for the full-year from 4% for 9M.

Guide is for mid-single digit positive reversion for retail. CQ@ Clarke Quay is at the final stage of asset enhancement initiative (AEI) with 85% pre-commits.

CICT is embarking on AEIs for IMM Building (SGD48m, target RoI 8%), Gallileo (EUR175-215m) and 101 Miller Street (AUD9m) planned to be completed in the next two years.

While the Gallileo AEI costs almost same as the asset, it is needed for its continued relevance.

Valuation/Recommendation

Factoring in lost income from Gallileo but better portfolio performance and completion of AEI, we leave our FY24 DPU est. unchanged but raise FY25 by 1.8%.

Coupled with a lower discount rate, our TP rises to SGD2.10. While 5.6% yield is at mid-point of its historical range, we like CICT’s SGcentric resilient income profile and strong credit standing.

Upside will include earlier-than-expected pick-up in leasing demand for retail or office space driving improvement in occupancy, better-than-anticipated rental reversions and accretive acquisitions or redevelopment projects.

However, downside will include prolonged slowdown in economic activity could reduce demand for retail or office space, resulting in lower
occupancy and rental rates and termination of long-term leases contributing to weaker portfolio tenant retention rate.

You can find the full report here and the REIT website here.