CapitaLand Integrated Commercial Trust - UOB Kay Hian 2021-03-24: Pure Play On Recovery In The Domestic Economy


CapitaLand Integrated Commercial Trust - Pure Play On Recovery In The Domestic Economy

  • CapitaLand Integrated Commercial Trust provides diversified exposure to the retail and office sectors, which make it an ideal pure play on recovery in the domestic economy. In particular, we are optimistic that the recovery in retail spending will extend from suburban malls to downtown malls.
  • We expect CapitaLand Integrated Commercial Trust to focus on enhancements for retail malls, such as Plaza Singapura, RCS, IMM and CQ.
  • CapitaLand Integrated Commercial Trust provides 2022 distribution yield of 5.5%, which is attractive given its scale and diversification. Upgrade to BUY. Target price: S$2.42.


Recovery in retail is entrenched.

  • Retail sales recovered 13.1% q-o-q in 4Q20. CapitaLand Integrated Commercial Trust (SGX:C38U)’s (CICT) portfolio of 14 retail malls is benefitting due to:
    1. Phase 3 of re-opening. It commenced on 28 Dec 20. The size of social gatherings, including dining-in at restaurants, has increased from five to eight persons. Similarly, the capacity limits for retail malls and large standalone stores was raised as density rules were eased from 10sqm to 8sqm per person.
    2. Singapore’s rollout of COVID-19 vaccinations. It began in Jan 21. Since then, 392,620 Singaporeans have received at least one dose of the COVID-19 vaccine (6.7% of population), of which 218,694 are fully vaccinated. The government targets to have 40 vaccination centres in operation and 1.25m people vaccinated by end-Apr 21. Having a larger proportion of population vaccinated reduces the risk of community transmission and paves the way for further easing of safe-distancing measures.
    3. Impending return of tourists. The government is working with Australia and Hong Kong on air travel bubbles for leisure travel without quarantine. The gradual recovery could last three to five years before the volume of visitor arrivals returns to pre-pandemic levels. We estimate tourists accounted for 22.3% of retail sales excluding motor vehicles in 2019 (pre-pandemic).

Recovery broadens to downtown malls.

  • CapitaLand Integrated Commercial Trust’s suburban malls are faring better with tenant sales up a marginal 1.3% y-o-y in 4Q20, compared with a 16.3% fall y-o-y for downtown malls. In Singapore, 43% of the office community returned to work at their office premises in Jan 21. The Ministry of Manpower is reviewing safe management measures for the workplace after the Chinese New Year. Thus, limits on employees working at their offices could be further eased.
  • Downtown malls, such as Bugis Junction, Funan, Plaza Singapura and RCS, will benefit from more employees returning to their offices.

Office portfolio likely to register negative rental reversion.

  • Leasing enquiries for office space have picked up driven by asset management companies, family offices and Chinese technology companies. Demand is trickling back. However, rents for grade A office space in core CBD has corrected 10% to S$10.40psf in 2020.
  • CapitaLand Integrated Commercial Trust’s average expiring rents are high at S$11.97psf pm for Asia Square Tower 2 and S$11.48psf pm for CapitaGreen. Leases expiring in 2021 for the two buildings accounted for a sizeable 6.3% and 7.6% of gross m its office portfolio. Thus, rental reversion for its office portfolio is likely to be slightly negative in 2021.

21 Collyer Quay starts to contribute in 4Q21.

  • WeWork plans to launch its largest location in Singapore with NLA of 200,469sf at 21 Collyer Quay in the next 9-12 months. The tenant has signed a 7-year lease for the entire building. WeWork plans to go public again. It is valued at US$10b in the merger with special purpose acquisition company (SPAC) BowX Acquisition.

Focusing on AEIs.

  • In the medium term, CapitaLand Integrated Commercial Trust will focus on asset enhancement initiatives (AEI) for:
    1. Plaza Singapura. URA plans to turn the Dhoby Ghaut precinct into a lush green oasis comprising Istana Park, Dhoby Ghaut Green and Plaza Singapura for family-oriented attractions. Play areas for children and a sheltered event space will be built above the Dhoby Ghaut MRT station. Plaza Singapura could be enhanced to better serve families and kids enjoying attractions in the vicinity. The plot ratio for Plaza Singapura has increased from 4.2 to 5.6 under Master Plan 2019.
    2. IMM Building. CapitaLand Integrated Commercial Trust intends to enhance the retail space of 424,408sf, which accounted for 44% of total NLA. A feasibility study on the potential AEI is ongoing. The building has 538,970sf of warehouse space, which accounted for 56% of total NLA. It is uncertain if CapitaLand Integrated Commercial Trust can unlock value by converting the warehouse space into higher value retail and office space.
    3. Raffles City Singapore (RCS). CapitaLand Integrated Commercial Trust could enhance RCS by shifting to a more upmarket positioning. A segment of the mall could be devoted to a luxury brand.
    4. Clarke Quay (CQ). The JV between CapitaLand (SGX:C31) (CapitaLand Integrated Commercial Trust’s sponsor) and City Developments (SGX:C09) to redevelop Liang Court will rejuvenate the surrounding area. CapitaLand Integrated Commercial Trust could enhance CQ by changing the trade mix to complement Liang Court.

Long planning phase before redevelopment potential can be realised.

  • CapitaLand Integrated Commercial Trust will explore redevelopment of select existing properties in the long term (2022 and beyond). Management will time the redevelopment projects to minimise disruptions to maintain stability of cash flow and DPU. However, current elevated construction costs are not conducive for the pursuit of redevelopment opportunities.

Capital Tower may not be eligible for the CBD scheme

  • Capital Tower may not be eligible for the CBD scheme, which provides an increase in gross plot ratio of 25-35% when buildings are redeveloped into mixed developments with hotel/residential components. Capital Tower is located at Tanjong Pagar where buildings are zoned for commercial use (retail and office).


Fundamentals remain unchanged.

Size matters when refinancing.




  • Gradual but steady recovery in shopper traffic and tenant sales at retail malls, accompanied by progressive easing of safe-distancing measures.
  • Asset enhancements for existing properties.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-03-24
SGX Stock Analyst Report BUY UPGRADE HOLD 2.42 UP 2.320