CapitaLand Integrated Commercial Trust

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.

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