CapitaLand Integrated Commercial Trust 3Q21 Update - Phillip Securities 2021-10-25: Containment Measures Slowing Recovery

CAPITALAND INTEGRATED COMM TR (SGX:C38U)

CapitaLand Integrated Commercial Trust 3Q21 Update - Containment Measures Slowing Recovery

CapitaLand Integrated Commercial Trust (SGX:C38U)'s 9M21 revenue and NPI in line at 71.9% and 74.6% of our FY21e forecast respectively.
Improving tenant sentiment and leasing enquiries, but operating metrics dampened by tightened restrictions in 3Q21, affecting physical viewings and tenant sales.
Maintain ACCUMULATE on CapitaLand Integrated Commercial Trust with DDM-based (COE 6.27%) target price of S$2.54. Stock catalysts expected from further asset enhancement initiatives and portfolio reconstitution.

CapitaLand Integrated Commercial Trust's 9M21 retail reversions improved to -8.0% from -9.6% as at 6M21, -3.8% and -14.3% for suburban and downtown malls respectively. Average incoming vs average outgoing rents have also narrowed q-o-q from -4.4% to -3.5%. Tenant sentiment continues to recover, with positive reversions for some suburban leases.
New to market/portfolio and expansions account for 65.5% and 34.5% of 3Q21 retail leases, of which F&B and Beauty & Health account for 62.3% and 15.5%.
Office leasing enquiries grew 1.3x q-o-q, driven by expansion (38%), relocation (32%), consolidation (23%) and new set-up space (7%) enquiries. 5.4%/26.3% of office expiries by GRI remain for FY21/22.
CapitaLand Integrated Commercial Trust has begun renewal discussions for 19.4% of FY22 expiries. CapitaLand Integrated Commercial Trust continues to sign leases above market rents although 9M21 reversions still in the negative single digits.

Softer leasing due to the two-pax group size during the second P2HA and stabilisation phase have reduced physically viewings. Retail occupancy dipped q-o-q from 97.0% to 96.4% due to Atrium@Orchard (-2.1ppts), Clark Quay (-2.6ppts) and Bugis+ (-2.8%).
9M21 tenant sales dipped to 83.8% of 2019 levels (6M21 86.3%) due to tightened restrictions. Slight decline in office occupancy q-o-q from 93.0% to 92.6% due to downsizing at CapitaGreen (-3.6%) and Asia Square Tower 2 (-1.9%).

Leasing continues to recover although dampened by the containment measures. Office physical occupancy remains low at 15.7%. Relaxation of safe management measure and return to office should provide an uplift for tenant sales and carpark revenue.
Committed occupancy at CapitaSpring continues to creep up, landing at 83.1% as at end-Sep 21, with another 7.2% of leases under advance negotiation. Majority of tenants are expected to move in and begin contributing to income in 2H22.
CapitaLand Integrated Commercial Trust is repositioning Raffles City to an upscale shopping destination and has garnering good interest from prospective fashion, beauty and lifestyle retailers. AEI works to reconfigure the space previously occupied by Robinsons into smaller units and improved vertical connectivity within the mall are expected to be completed in 4Q22.
Plans to reposition Clark Quay are still under discussion.
CapitaLand Integrated Commercial Trust granted S$19mil in rental rebates for 1H21, equivalent to 0.3months in rent waivers. The management is forecasting another ~$10mil for 2H21. Our FY21e DPU forecast of S$0.1019 factors in a more conservative 1 month of rental rebate for FY21 versus the management’s current estimate of ~0.5 months.

Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2021-10-25

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