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By augustine16 //
June 7, 2024

Excerpts from UOBKayHian report

CapitaLand Integrated Commercial Trust (SGX: C38U)

  • Singapore provides resilient growth with CapitaLand Integrated Commercial Trust (CICT) retail and office leases registering positive rental reversion of 7.2% and 14.1% respectively in 1Q24.
  • Retention rate was high at 88.1% for retail and 84.2% for office. CICT has embarked on AEI works for IMM Building in Singapore.
  • It has secured ECB as the new anchor tenant at Gallileo in Frankfurt, Germany for a period of 10 years. CICT provides a resilient 2024 distribution yield of 5.7%.

Maintain BUY. Target price: S$2.34.

Benefitting from resiliency and growth in Singapore

CapitaLand Integrated Commercial Trust gross revenue and NPI grew 2.6% and 6.3% yoy respectively in 1Q24. NPI margin improved 2.6ppt yoy to 73.7% primarily due to lower expenses on utilities.

Retail: Resiliency from suburban malls

CICT achieved positive rental reversion of 7.2% on an average-to-average basis for retail properties in 1Q24 (suburban: 7.2%, downtown: 7.1%) (2023: 8.5%).

Committed occupancy for retail improved 0.2ppt qoq to 98.7%. Tenant sales psf increased 2.1% (suburban: 3.1%, downtown: 1.7%).

Tenant sales psf saw healthy growth from beauty & health (+7.9% yoy), food & beverage (+4.9% yoy) and jewellery & watches (+4.5% yoy), driven by the pick-up in tourist arrivals.

Office: Pick-up in rental reversion

CICT achieved stellar positive rental reversion of 14.1% for office properties in 1Q24. Occupancy for the Singapore office improved 1.0ppt yoy but dipped 0.9ppt qoq to 95.8% due to transitory vacancy at CapitaGreen (discussion with prospective tenants are  ongoing).

Major expansions committed in 1Q24 include Mizuho Securities at Asia Square Tower 2 and Qube Research & Technologies at Six Battery road.

The average rent of its Singapore office portfolio rose 2.4% yoy to S$10.63psf per month. Occupancy was stable at 88.6% for the Australia office portfolio.

Prudent capital management

Aggregate leverage was stable at 40.0% as of end-Mar 24. Cost of debt inched up slightly by 0.1ppt qoq to 3.5% in 1Q24. Management guided for cost of debt at mid-to-high 3% for 2024.

Continued recovery in retail rents

Leasing momentum remains strong in 1Q24 due to resilient consumer spending boosted by the disbursement of CDC vouchers. Demand was
driven by food & beverage operators and the proliferation of new-to-market brands.

Downtown malls outperformed due to tourism recovery, high-profile concerts, and back-tooffice momentum. CBRE expects retail rents to continue to recover in 2024.

Valuation/Recommendation

Maintain BUY. Our target price of S$2.34 is based on the Dividend Discount Model (cost of equity: 6.75%, terminal growth: 2.2%). Steady recovery in shopper traffic at CICT’s downtown malls driven by a recovery in tourist arrivals and employees returning to offices.

Asset enhancement and redevelopment of existing properties.

CapitaLand Integrated Commercial Trust
CapitaLand Integrated Commercial Trust share price chart

You can find the full report here and the company website here

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