• Maintain BUY and SGD2.30 TP (13% upside), and c.5% yield. CapitaLand Integrated Commercial Trust’s 3Q24 financials were slightly ahead on better margins. We expect a few divestments in the near term, with proceeds to be used for redevelopment and acquisitions. Retail and office rent reversions are healthy, and are expected to remain positive, while occupancy should also stay firm. With the enhanced size and higher free float post acquisition, the REIT should trade at a premium to book value as rate cuts materialise.

• Completed ION Orchard acquisition (end-October) with overwhelming approval from unitholders (c.99.9%). To recap, CICT acquired a 50% stake from the sponsor for SGD1.85bn. The deal was partly funded by a private placement issue of 172m units at SGD2.04/unit and preferential offering of 377m units at SGD2.007/unit, raising a total of SGD1.1bn in equity with the balance funded by debt. Based on this funding (and assuming the 70% entire management fee is paid in units vs 50% currently), CICT expects the deal to be marginally accretive. It is now working on obtaining potential tax transparency for ION Orchard’s income, which could enhance accretion (additional 1%), but we believe this may take some time (1-2 years).

• Gearing post acquisition to stay slightly below 40%. Divestments are likely in the near term, with the Citadines Raffles Place deal currently in advanced stages. Other potential assets include 21 Collyer Quay and Bukit Panjang Plaza. Divestment proceeds will likely be channelled into redevelopments (likely Gallileo) and potential acquisitions from the sponsor pipeline.

• Healthy rent reversions. YTD (9M24) retail rent reversion was at 9.2% (1H24: 9.3%) with slightly stronger downtown mall performance. However, similar to peers, overall portfolio retailtenant sales (9M24) dipped 0.2% YoY. Management noted that this is an area it is closely monitoring, and that it is also working on improving the tenant mix at its malls. Office portfolio rent reversion (9M24) stood at 11.7% (1H24: 15%) and continues to outperform broader market expectations, in our view. Rent reversions are expected to be in high-single digits for FY24 and in low- to mid-single digits for FY25.

• Portfolio occupancy was down 0.4ppts QoQ to 96.4% mainly due to lower occupancy at Main Airport Center in Frankfurt, which CICT noted as a challenging market, although it expects occupancy to stabilise. Valuations for its overseas assets are expected to drop during the year-end valuation but are likely to be offset by the higher value for its Singapore portfolio.

• Estimates and ESG. We updated our estimates to include ION Orchard, which we expect to be DPU-neutral, and hence, no material changes to our DPU forecasts. Our TP includes a 6% ESG premium.

Source: RHB Securities Research - 6 Nov 2024