Excerpts from UOBKayHian report
CapitaLand Integrated Commercial Trust (SGX: C38U)
- The Singapore retail and office portfolios achieved positive rental reversions of 9.3% and 15.0% respectively based on the average rent of signed leases in 1H24.
- NPI increased 5.4% yoy and NPI margin expanded 2.2ppt yoy to 73.5% in 1H24 due to lower utility expenses and savings from the new property management agreement.
- AEIs at IMM Building in Singapore and Gallileo in Frankfurt, Germany are on track for completion in 2H25. CICT provides a resilient 2025 distribution yield of 5.1%.
Maintain BUY. Target price: S$2.29.
NPI margin expanded 2.2ppt yoy to 73.5%
CapitaLand Integrated Commercial Trust (CICT) reported DPU of 5.43 S cents for 1H24 (+2.5% yoy), which is slightly above our expectation.
Gross revenue grew 2.2% yoy in 1H24 due to higher rental income, despite absence of income from Gallileo undergoing an asset enhancement initiative (AEI) since Feb 24.
Net property income for 1H24 increased 5.4% yoy due to lower utility expenses and savings from the new property management agreement.
Retail: Resilient performance from suburban malls
CapitaLand Integrated Commercial Trust retail portfolio achieved positive rent reversion of 9.3% based on the average rent of signed leases in 1H24 (suburban: 9.1%, downtown: 9.5%).
Occupancy edges higher by 0.3ppt qoq to 99.0% in 2Q24. Tenant retention was healthy at 85.7%. Tenant sales psf for suburban malls grew 1.8% yoy.
Tenant sales psf for downtown malls dropped 0.9% yoy due to: a) Clark Quay still ramping up, and b) higher outbound travel being exacerbated by the strong Singapore dollar.
In absolute dollar terms, tenant sales for downtown malls were up 4.3% yoy. New brands include SushiSamba at Capital Tower (dining and entertainment), IL Clay Supper Club at Clarke Quay (ItalianMediterranean restaurant) and Lola’s Cafe at Tampines Mall.
Office: Maintained stable occupancy
The office portfolio achieved positive rent reversion of 15.0% based on the average rent of signed leases in 1H24. Occupancy was stable at 95.3% in 2Q24 (Singapore: 97.3%, Australia: 88.0%). Tenant retention was healthy at 81.5%.
Office tenants who signed new or renewed leases in 2Q24 include Jain Global (Singapore) and Wintermute Asia at CapitaGreen, China-Base Resource Singapore at Raffles City Tower and Wesfarmers Health at 66 Goulburn Street.
Rental reversion could be flattish in 2H24 due to high average rents for leases expiring of S$12.13psf for Asia Square Tower 2, S$12.01psf for CapitaGreen and S$12.29psf for Six Battery Road.
Cost of debt has stabilised
Aggregate leverage eased slightly by 0.2ppt qoq to 39.8% as of Jun 24 due to its distribution reinvestment plan. Average cost of debt was stable at 3.5% in 2Q24.
Management expects cost of debt to be stable at mid-3% in 2024. About 76% of its borrowings are on fixed interest rates while 80% of its borrowings due to expire in 2H24 have been refinanced or are in loan documentation stage.
Valuation/Recommendation
Maintain BUY. Our target price of S$2.29 is based on the dividend discount model (cost of equity: 6.75%, terminal growth: 2.2%).
There is steady recovery in shopper traffic and tenant sales at CICT’s downtown malls driven by a recovery in tourist arrivals and work-from-office momentum and asset enhancement and redevelopment of existing properties.
You can find the full report here and the company website here.
