CapitaLand Integrated Commercial Trust - Phillip Securities 2022-05-09: Recovery In Full Swing


CapitaLand Integrated Commercial Trust - Recovery In Full Swing

  • CapitaLand Integrated Commercial Trust (SGX:C38U)'s 1Q22 Revenue (+1.5% y-o-y) and NPI (+0.5% y-o-y) were in line; NPI formed 23.7% of our FY22 forecast.
  • Negative retail reversions continue to narrow while higher discretionary spending lifted tenant sales.
  • Strong leasing quarter for Singapore office portfolio; pencilling in 9.3% in reversions.
  • Upgrade CapitaLand Integrated Commercial Trust from ACCUMULATE to BUY, DDM-based (COE 6.41%) target price raised from S$2.39 to S$2.46 as we increase FY23e-26e DPUs by 3.1-3.3% to factor in acquisition of 70% stake in CapitaSky (formerly known as 79 Robinson Road).
  • CapitaLand Integrated Commercial Trust is positioned to benefit from the economic reopening given its exposure to downtown malls and returning office leasing demand.

The Positives

Narrowing negative reversions reflective of improving tenant sentiment.

  • 1Q22 retail reversions came in at -4.1% compared with FY21's -7.9%, with reversions at suburban malls improving from -2.4% to -0.2% and downtown malls narrowing from -13.8% to -7.1%.
  • CapitaLand Integrated Commercial Trust renewed 7% of retail NLA in 1Q22, with retention rate coming in at 91%.
  • Despite 5.3% y-o-y decline in footfall, 1Q22 tenant sales gained 0.6% y-o-y, driven by driven by discretionary trades such as fashion, accessories and beauty.
  • Retail occupancy came in at 96.6% (- 0.2ppts q-o-q), due to leases expiring in Clarke Quay ahead of its impending AEI, excluding which occupancy would be 98.3%.

Office reversions came in at +9.3%, attributed to Singapore assets.

  • CapitaLand Integrated Commercial Trust signed ~8mil sq ft of space in 1Q, 12% of which are new leases from tenants in the financial services, IT, media and telecommunications and manufacturing and distribution.
  • Occupancy for the Singapore office portfolio improved from 90.4% to 92.3% but remains below market average of 93.8%. Significant occupancy gains at Six Battery Road (+8.7ppts), CapitaSpring (+7.0ppts) and Asia Square Tower 2 (+1.9ppts). Backfilling of Six Battery Road and Capital Tower still in progress, with occupancy coming in at 88.4% and 76.6% respectively.
  • CapitaLand Integrated Commercial Trust is in advanced negotiations with several tenants for space at Capital Towers which would bring occupancy to ~94% if concluded. Tenant retention rate was high at 95.5%, albeit with some tenants choosing to downsize. We understand that some bank tenants who have previously downsized are requesting for more space.

The Negative

Higher electricity cost expected in FY22.

  • Electricity accounts for ~5% of CapitaLand Integrated Commercial Trust's OPEX. The impact of rolling onto new electricity contracts at tariffs that are 90% higher y-o-y, will be felt in 1Q22 as well as in FY23 when the fixed contracts expire. The management is reviewing increasing the service charge but articulated that the higher electricity cost may be partially offset through higher gross turnover rents when retailers raise prices to cope with inflationary costs.


  • CapitaLand Integrated Commercial Trust's acquisition of the two Australian properties, 66 Goldburn Street and 100 Arthur Street, and 70% stake in CapitaSky were completed in Mar22 and Apr22 respectively. These acquisitions will feature more prominently from 2Q22 onwards.
  • AEI at Raffles City Shopping Mall is expected to be completed in 4Q22 while the AEI at Clarke Quay is pending final clearance from the authorities. The management is also starting to relook at redevelopment opportunities within the portfolio.
  • The estimated legal purchase completion of 101-103 Miller Street was delayed from 1Q22 to 2Q22 and is pending approvals from the North Sydney Council and relevant transport authorities.

Upgrade from ACCUMULATE BUY; DDM-based target price raised from S$2.39 to S$2.46

Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2022-05-09
SGX Stock Analyst Report BUY UPGRADE ACCUMULATE 2.46 UP 2.390