CapitaLand Integrated Commercial Trust - Maybank Research 2022-07-28: Tailwinds With Reopening

CAPITALAND INTEGRATED COMM TR (SGX:C38U)

CapitaLand Integrated Commercial Trust - Tailwinds With Reopening

CapitaLand Integrated Commercial Trust (SGX:C38U)’s 1H22 revenue/NPI rose 7% y-o-y/6% y-o-y and 4% h-o-h/5% h-o-h, with contribution from acquisitions (70% interest in CapitaSky, three Australian assets) and rental income, offsetting the divestment of JCube and higher opex.
Occupancy rose to 93.8% in 2Q22 (from 93.6% in 1Q22) and should improve with backfilling of office vacancies.

We expect stronger fundamentals in 2H22, with easing negative retail reversions, tailwinds from office sector recovery, and traction from improving NPI.
CapitaLand Integrated Commercial Trust's balance sheet is strong, and we see upside from deals, as management eyes growth for its Singapore AUM.

Retail occupancy was stable at 96.5% (vs 96.6% in 1Q22) but Clarke Quay remained a drag (at 71.2%). An S$62m AEI from 3Q22-3Q23 and tenant remix on extended trading hours is expected to deliver a mid-single-digit ROI.
Rental reversion improved to -0.5% in 1H22 (from -1.3% in 1Q22/-3.2% for FY21), led by stronger recovery at its downtown assets at -1.9% (vs - 3.1%/-7.7%). They led growth in tenant sales/shopper traffic (at +26% y-o-y/+15% y-o-y) ahead of suburban malls (+8% y-o-y/+11% y-o-y).
We see room for rents to strengthen in 2H22 as sentiment among retailers recovers.

Office occupancy increased to 91.9% (vs 91.4% in 1Q22) and was higher in Singapore (from 92.3% to 92.9%). Occupancy rose at Asia Square T1 (from 97.5% to 98.3%), CapSpring (98.5% to 99.5%) and Raffles City (96.1% to 99.4%) due to successful backfilling. We expect this to rise, in line with the higher committed occupancy (of ~87-100%) for Asia Square T1, 6 Battery Road and CapTower.
Rents rose 0.4% q-o-q on average to S$10.53 psfpm in 2Q22 (vs +1.5% q-o-q in 1Q22), and should increase further on demand growth and tight supply.
CapitaLand Integrated Commercial Trust sees positive reversion for the portfolio in FY22E, with higher contribution from CapSpring, 21 Collyer Quay and 6 Battery Road underpinning NPI recovery.

CapitaLand Integrated Commercial Trust's gearing was stable at 40.6%, with its fixed-debt ratio high at 81% (vs 85% at end-Mar 2022). CapitaLand Integrated Commercial Trust estimates a 1% rise in borrowing cost could lower DPU by 1.6%. Its balance sheet is strong, with an estimated S$2.6b debt headroom (at 45% gearing limit).
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We think management is eyeing a Singapore acquisition from its sponsor or the Mercatus assets, which could be co-invested, and could be accretive if debt-funded at a 4.5% cap rate.
Our forecasts and S$2.55 DDM-based target price for CapitaLand Integrated Commercial Trust are unchanged (COE: 5.9%, LTG: 1.5%).
CapitaLand Integrated Commercial Trust's valuations are compelling at 5.3% FY22E dividend yield and 1.0x P/B vs history and peers. BUY.

Chua Su Tye Maybank Research | https://www.maybank-ke.com.sg/ 2022-07-28

SGX Stock Analyst Report BUY MAINTAIN BUY 2.55 DOWN 2.600