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RHB Investment Research Reports

Author: rhbinvest   |   Latest post: Fri, 3 Feb 2023, 11:31 AM

 

Capitaland Integrated Commercial Trust - Nearing Fair Value; Cut to NEUTRAL

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  • D/G to NEUTRAL from Buy, with higher SGD2.35 TP from SGD2.20, 5% upside, c.5% yield. Capitaland Integrated Commercial Trust’s acquisition of 79 Robinson Road (RR) was largely anticipated, though pricing is slightly on the higher side, in our view. Its Singapore office and retail portfolio stand to benefit from the latest Government announcement for a significant relaxation of COVID-19 restrictions starting this week. With the stock up 15% since January, and trading at 1.1x P/BV with a c.5% yield, the positives are mostly priced in.
  • Acquisition of a 70% stake in RR with CapitaLand Open End Real Estate Fund (COREF) acquiring the remaining 30% balance stake from a special purpose vehicle (SPV) held by sponsor CapitaLand Investment (CLI) (65%) and Mitsui & Co., Ltd. and Tokyo Tatemono Co., Ltd (35%). The asset is a redevelopment of the former CPF building and was completed in Mar 2020 with a balance of 45 years lease tenure. The agreed value (100% basis) of SGD1.26bn or SGD2,423psf (at par with the latest independent valuation) translates to an initial 4% NPI yield.
  • Pricing on higher side but room for upside potential. The acquisition price is 15% higher than Capitaland Investment Ltd’s (end Dec 2021) carrying value of SGD1.1bn and 42% higher than nearby OUE Downtown office’s SGD1,704psf (end Dec 2021) which has a similar land lease tenure. On the positive side, the asset comes with brand new high specifications and a BCA Green Mark Platinum certification (highest green rating). Additionally, there is room for occupancy upside from the current 92.9% with the office sector experiencing a continued positive demand. The asset comes with a long weighted average lease to expiry (WALE) of 5.8 years and rent step-ups for the majority of leases. The top three tenants which account for c.48% of income are Allianz, Equinix Asia Pacific, and The Boston Consulting Group.
  • To be funded by JCube divestment proceeds (SGD335m) and debt. It will result in a DPU accretion of 2.9% (pro-forma FY21). Gearing post acquisition is expected at 41% indicating that subsequent acquisitions are likely to come with an equity fund raising. Management hinted that its next potential acquisition would be in Singapore and is also based on investor feedback for more Singapore exposure. We believe a likely candidate could be a remaining stake in recently completed CapitaSpring (currently CICT owns a 45% stake). Post-acquisition, Singapore accounts for 92% of its portfolio value with Australia and Germany accounting for 4% each.
  • We revise up our FY22-24F DPU by 2-3% factoring in acquisitions. CICT scores high on the ESG front (3.3 out of 4.0), which is derived based on our proprietary in-house methodology and is reflective of its committed efforts to reduce carbon footprint and a good governance. As the score is three notches above country median, we have applied a 6% ESG premium.

Source: RHB Research - 28 Mar 2022

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