CICT's 1H21 in Line, Undemanding Valuations

• CapitaLand Integrated Commercial Trust (SGX:C38U) reported an in-line 1H21, as revenue, NPI and DPU met 47-48% of our full-year estimates. Revenue and NPI eased in 2Q21 at ~8% q-o-q and ~9% q-o-q, as its retail assets saw a weaker performance at ~12% q-o-q and ~14% q-o-q, while vacancy rose for its Singapore offices.
• Risk-reward however remains favourable, as CapitaLand Integrated Commercial Trust is now past the peak of rental waivers, with negative rental reversions expected to ease further into 2H21, while it gains from completed office AEIs and lower borrowing costs.
• CapitaLand Integrated Commercial Trust's valuations at ~5% dividend yield and 1x P/B are undemanding versus history and peers, and we maintain BUY with DDM-based target price of S$2.55 (COE: 5.9%, LTG: 1.5%).

Retail Has Stabilised, Recovery Towards 4Q

• Retail occupancy was stable at 97.0% (from 97.1% in 1Q21), with rental reversion at -4.5%, versus -6.6% in 4Q20. Reversions were weaker at -8.8% for its downtown malls, versus -1.4% for suburban assets, as shopper traffic and tenant sales eased in 2Q21 with 1H21 at 57-65% and 76-94% below pre-COVID levels.
• The accelerated pace of vaccine roll-out suggests a stronger 4Q recovery, as tenant expansion gains traction. However, expiring leases at Funan in its first renewal cycle in FY22-23 could cap growth upside.

Office NPI Cushioned by AEIs, CapitaSpring

• Office occupancy dipped q-o-q to 93.0% (from 94.9%), mainly due to Asia Sq Tower 2 in Singapore (from 95.5% to 84.7%) as the anchor tenant lease (for Allianz) expired and backfilling efforts are underway. Its average office rents at S$10.25 psfpm was lower at -0.3% q-o-q, while leasing slowed to 186k sf (from 292k sf). Its WALE by NLA declined to 2.7 years (from 3.0 years in 1Q21), with a pre-termination by Commerzbank at Galileo.
• Occupancy for CapitaSpring rose q-o-q to 61.8% (from 50%), with improving contributions from 21 Collyer Quay and 6 Battery Road supporting DPU recovery in 2021.

Upside From Acquisitions, AEIs, Redevelopment

• CapitaLand Integrated Commercial Trust discontinued its semi-annual portfolio revaluation given expectations of stable cap rates. Gearing was stable at 40.5% (from 40.8% as of end-Mar 2021) with ~S$3.8b debt headroom (50% limit).
• Growth levers from its sponsor’s pipeline, AEIs and value-accretive redevelopment plans are near to medium term catalysts that could support DPU upside.

Source: Maybank Kim Eng Research - 29 Jul 2021