Larger REIT Poised for Growth, Maintain BUY

• CapitaLand Integrated Commercial Trust (SGX:C38U) has emerged post-merger as Singapore’s largest REIT and also among Asia’s largest, with a S$22.4b AUM diversified across 24 retail, office and integrated development assets.
• Valuations are undemanding at 5.2% FY21 dividend yield and 1.0x PB versus history and peers, and we reinstate coverage on CapitaLand Integrated Commercial Trust at BUY with a DDM-based target price of S$2.50 (COE: 5.9%, LTG: 1.5%).
• We see near-term catalyst from DPU recovery in 2021 and medium-term earnings upside as it leverages added development capacities into value-accretive AEIs and redevelopment opportunities.

Negative Retail Rent Reversions to Moderate

• We expect negative reversions to moderate in 2021 as social-distancing measures continue to ease, and retail recovery gains traction. Shopper traffic has remained stable since Phase 2’s reopening as tenants’ sales have gradually improved, returning to 89% of pre-Covid levels, versus 85% in 1H20.
• We expect CapitaLand Integrated Commercial Trust's suburban malls to be more resilient in terms of occupancy and rents. But there’s optimism as the rent-relief cycle seen in 3Q20 has peaked, and tenants expanding again in 2021-22.

AEI/redevelopment Completions Back Office Growth

• CapitaLand Integrated Commercial Trust's office portfolio is likely to face higher vacancies in 2021, but NPI growth will be supported by the completion of AEIs at 20 Collyer Quay, and commencement of its WeWork lease in 4Q21, and 6 Battery Road. Occupancies should gradually improve from 2021 onwards.
• In addition, there should be earnings contribution from the 45%-owned CapitaSpring development from 2022. The latter’s pre-commitment is at 34.9% but we expect occupancy to rise to 50% upon completion (in 2H21) and then progressively stabilise in 2023.

Upside From Higher Development Headroom

• We expect CapitaLand Integrated Commercial Trust to scale up on its enlarged asset base, supported by low 39.7% gearing and S$2.2b debt headroom (at 45% limit).
• CapitaLand Integrated Commercial Trust's sponsor offers a S$5.2b acquisition pipeline, but we think management will likely prioritise its value-accretive AEIs and redevelopment plans with the higher S$5.8b development headroom, and view its less resilient downtown malls - Raffles City, Clarke Quay and Plaza Singapura as key candidates.
• See CapitaLand Integrated Commercial Trust Share Price; CapitaLand Integrated Commercial Trust Target Price; CapitaLand Integrated Commercial Trust Analyst Reports; CapitaLand Integrated Commercial Trust Dividend History; CapitaLand Integrated Commercial Trust Announcements; CapitaLand Integrated Commercial Trust Latest News.

Sector Report on Singapore Office REITs

• Singapore Office REITs - Maybank Kim Eng 2020-12-15: Working In A New Normal ~ Fundamentals Weak; Work-From-Home A Structural Negative.

Source: Maybank Kim Eng Research - 15 Dec 2020