Simons Trading Research

Author: simonsg   |   Latest post: Wed, 18 May 2022, 11:34 AM


CapitaLand Integrated Commercial Trust 1Q21 Business Update - Downtown Malls Catching Up on Recovery

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  • CapitaLand Integrated Commercial Trust reported gross revenue of S$334.8m (+63.9% y-o-y) and NPI of S$247.1m (+66.6% y-o-y) in 1Q21, which were in line with our expectations.
  • The divergence between the performance of suburban malls and downtown malls has narrowed. Office occupancy was resilient at 94.9%. The RC Hotel lease was restructured.
  • CapitaLand Integrated Commercial Trust will benefit as the recovery broadens to downtown malls. The stock provides attractive 2022 distribution yield at 5.5%. Maintain BUY. Target price: S$2.42.

CapitaLand Integrated Commercial Trust's 1Q21 Business Update

  • CapitaLand Integrated Commercial Trust (CICT, SGX:C38U) reported gross revenue of S$334.8m (+63.9% y-o-y) and NPI of S$247.1m (+66.6% y-o-y) in 1Q21, which were in line with our expectations. This is the first full-quarter results after the merger of CapitaLand Mall Trust and CapitaLand Commercial Trust (SGX:C61U) was completed on 21 Oct 20.

Downtown malls catch up on recovery.

  • Retail occupancy edged marginally lower by 0.9ppt q-o-q to 97.1% in 1Q21. Management estimated negative rental reversion at mid single-digit (ranges from positive low single digit for suburban malls to negative low teens for downtown malls).
  • Shopper traffic remained 25% below pre-COVID-19 levels. Tenant sales grew 2.9% y-o-y (suburban malls: +4.3% y-o-y, downtown malls: -1.2% y-o-y). More shoppers are venturing to downtown malls as the economy reopens.

Office occupancy resilient but office rents slipped.

  • Office occupancy was 42% of the office leases expiring in 2021. It suffered tenant Mizuho Financial Group at Asia Square Tower 2. The average passing rent for Singapore office portfolio is S$10.28psf.

Restructured and extended the RC Hotel lease.

  • For integrated developments, occupancy at Raffles City Singapore has dropped 5.0% of CapitaLand Integrated Commercial Trust’s rental income for Mar 21 (Dec 20: 5.7%).

Refinancing reduces cost of debt while stretching out term to maturity.

  • Average cost of debt has improved 0.4ppt q-o-q to 2.4% after issuance of healthy at 40.8%, well within the regulatory limit of 50%.

Recovery broadens to downtown malls.

  • With effect from 5 Apr 21, safe management measures have been eased to allow up to 75% of employees to work from their offices. Downtown malls, such as Bugis Junction, Funan, Plaza Singapura and Raffles City Singapore, will benefit from more employees returning to their offices.

Realignment of Clarke Quay positioning in view of changes in the vicinity.

  • The JV between CapitaLand (SGX:C31) during day time as nightlife venues are affected by government-stipulated restrictions.

Office portfolio could incur slight negative reversion.

  • Leasing enquiries have picked up CapitaGreen. The two buildings accounted for a sizeable portion of office leases expiring the next three quarters, which accounts for 16.3% of gross rental income from the office portfolio. Thus, rental reversion for its office portfolio is likely to be slightly negative in 2021.

CapitaSpring 50% pre-committed.

  • 51-storey CapitaSpring at Raffles Place is on track for completion in Saxo Markets. Another 15% of NLA is under advanced lease negotiations (previous: 22%). 10% of office NLA is set aside for flexible workspace.

Earnings Revision & Recommendation

  • We maintain our existing DPU forecast for CapitaLand Integrated Commercial Trust. Maintain BUY.
  • Our target price of S$2.42 is based on the dividend discount model (cost of equity: 6.0%, terminal growth: 1.2%).
  • Catalyst to CapitaLand Integrated Commercial Trust's share price:
    • Gradual but steady recovery in shopper traffic and tenant sales accompanied by progressive easing of social distancing measures.
    • Asset enhancement and redevelopment of existing properties.

Source: UOB Kay Hian Research - 27 Apr 2021

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