• CapitaLand Integrated Commercial Trust's FY20 distribution of S$0.0869/unit is above at 107.2% of our FY20 projections.
• CapitaLand Integrated Commercial Trust maintained high overall portfolio occupancy in 4Q20.
• We reiterate our ADD rating with a higher DDM-based target price of S$2.56.

CICT's 4QFY20 Results Highlights

• CapitaLand Integrated Commercial Trust (SGX:C38U) reported a post-merger 4Q20 gross revenue of S$276.6m (+36% y-o-y) and distributable income of S$145.4m (+26.8% y-o-y), with the inclusion of CapitaLand Commercial Trust’s contributions from 21 Oct 2020.
• CapitaLand Integrated Commercial Trust’s distributable income fell 16.4% y-o-y to S$369.4m in FY20. It also took a small 0.4% haircut on property portfolio valuation.

Maintained High Retail Portfolio Occupancy

• CapitaLand Integrated Commercial Trust achieved portfolio occupancy of 96.4% at end-4Q (retail: 98%). It reported a -6.6% retail rental reversion for FY20. 4Q shopper traffic and tenant sales improved q-o-q and has recovered to 67.9% and 94.5% of 4Q19 level. Though the Singapore economy may be stabilising while tenants readapt and seize new opportunities, management thinks that the retail sector may remain under pressure in the near term.
• CapitaLand Integrated Commercial Trust has 16.3% of portfolio income derived from retail leases expiring in FY21F. We estimate low single-digit negative rental reversion to continue in FY21F.

Positive Office Rental Reversion in FY20

• CapitaLand Integrated Commercial Trust's office occupancy stood at 94.9% at end-4Q20. It renewed 167k sq ft of space in 4Q with positive rental reversion. With average expiring Singapore rents at S$10.75 psf, slightly higher than current market rents, we expect the positive rental reversion gap to continue to narrow in the near term.
• CapitaLand Integrated Commercial Trust has 8.5% of portfolio income derived from office leases expiring in FY21F and is evaluating tenant leasing requirements.

Potential Savings From Lower Funding Cost

• CapitaLand Integrated Commercial Trust’s gearing is at 40.6% at end-4Q20 with interest cover of 3.8x and average debt cost of 2.8%. CapitaLand Integrated Commercial Trust anticipates that it can achieve lower funding cost when it refinances S$1.2bn worth of debt due in FY21F, given the low interest rate environment.
• Post-merger, CapitaLand Integrated Commercial Trust has emerged as the largest integrated commercial S-REIT with an S$22.3bn asset base. The expanded balance sheet capacity would enable the group to explore value creation strategies including asset enhancements, acquisitions and portfolio reconstitution while maintaining a stable portfolio performance.

Reiterate ADD, Project CICT's FY20-22F DPU CAGR of 12.7%

• We restate our CapitaLand Integrated Commercial Trust's FY21-22F distribution estimates to take into account the merged entity and expanded units base. We reiterate our ADD rating as we believe CapitaLand Integrated Commercial Trust is well placed to benefit from a macro recovery given its diversified and stable earnings profile.
• Our current FY20-22F distribution CAGR estimate of 12.7% has not factored in any visible longer term growth catalysts from potential asset enhancements and acquisitions. Our higher DDM-based target price of S$2.56 is based on a lower COE of 6.25% (vs. 6.5% previously).
• Re-rating catalysts are more clarity on asset enhancement plans.
• Downside risks include slower than expected portfolio value creation and slower rental recovery outlook.

Source: CGS-CIMB Research - 21 Jan 2021