CAPITALAND INTEGRATED COMM TR (SGX:C38U)
CapitaLand Integrated Commercial Trust - Clear Signs Of Green Shoots But Challenges Remain
- CapitaLand Integrated Commercial Trust's 4Q20 and FY20 DPU fell 15.4% and 27.4% y-o-y, respectively.
- Tenants’ sales for suburban malls recovered above pre-COVID-19 levels.
- Good proxy to reopening theme.
CICT's FY20 results slightly below with our expectations
- CapitaLand Integrated Commercial Trust (SGX:C38U), formerly known as CapitaLand Mall Trust, reported its FY20 results which fell slightly short of our expectations. See CapitaLand Integrated Commercial Trust's announcements.
- For 4Q20, CapitaLand Integrated Commercial Trust's gross revenue and NPI jumped 36.0% and 36.4% y-o-y to S$276.5m and S$191.9m, respectively. This was driven largely by the consolidation of CapitaLand Commercial Trust (CCT) following the completion of the merger on 21 Oct 2020. However, distribution fell 15.4% y-o-y to S$0.0263/unit due to rental waiver of S$22.4m largely to its hotel tenant, higher finance costs and an enlarged unit base, but partially offset by the release of S$16.3m of taxable income available for distribution which was previously retained.
- CapitaLand Integrated Commercial Trust's FY20 distribution came in at S$0.0869/unit, representing a decline of 27.4% and this formed 96.8% of our forecast.
Green shoots in retail portfolio; uncertainties over office
- CapitaLand Integrated Commercial Trust’s retail portfolio committed occupancy remained firm at 98.0%. However, rental reversions were negative for all its malls in FY20 (-6.6% overall), as management’s aim was to strike the right balance between rentals and occupancy rates amid a challenging landscape.
- One huge encouragement was the recovery in tenants’ sales to 94.5% of the level a year ago in 4Q20, especially for its suburban malls, which on average had recovered to 101.3% of the level in the same period last year. Shopper traffic still trailed, as it was down 32.1% y-o-y in 4Q20.
- As for CapitaLand Integrated Commercial Trust’s office portfolio, overall occupancy stood at 94.9%. Although rental reversions were positive in 2020, management alluded to the possibility of some negative rental reversions in 1H21, but was hopeful of a recovery in 2H21. Leasing enquiries and demand have seen a pick-up at the start of the year, but we believe there are still uncertainties over the trend of telecommuting over the medium to longer term.
- CapitaLand Integrated Commercial Trust’s CapitaSpring has achieved its topping-out milestone, with current committed occupancy of 38% (as at 19 Jan 2021), and another 22% under advanced negotiation.
Gearing level not ideal but room to reduce it
- In terms of financial position, CapitaLand Integrated Commercial Trust’s aggregate leverage increased from 34.4% (as at 30 Sep 2020) to 40.6% due to additional debt taken for the merger with CapitaLand Commercial Trust. Management highlighted that this was still manageable, but acknowledged that it would prefer to bring its leverage ratio below 40%. This could come in the form of asset divestments.
- Over the medium to longer term, CapitaLand Integrated Commercial Trust is open to exploring redevelopment opportunities within its portfolio, which could take place over a 3-5 year horizon. See CapitaLand Integrated Commercial Trust Share Price; CapitaLand Integrated Commercial Trust Target Price; CapitaLand Integrated Commercial Trust Analyst Reports; CapitaLand Integrated Commercial Trust Dividend History; CapitaLand Integrated Commercial Trust Announcements; CapitaLand Integrated Commercial Trust Latest News.
- We roll forward our valuations and also raise our terminal growth rate assumption by 25 bps to 1.25% given more visible signs of a recovery in the global economy and retail sector. Our fair value estimate increases from S$2.38 to S$2.60. BUY.
- Near-term risks to our forecasts include the possibility of new restrictions and safeguards being imposed by the Singapore government given the creep up in COVID-19 community cases.
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2021-01-22
SGX Stock
Analyst Report
2.60
UP
2.380
