Recovering NPI, BUY

• CapitaLand Integrated Commercial Trust (SGX:C38U)'s Revenue/NPI rose 1.5% y-o-y/0.5% y-o-y in 1Q22 with higher contribution from its retail, office and integrated development assets. Easing negative retail reversions, together with tailwinds from office sector recovery, and then traction from improving NPI, suggest stronger fundamentals in FY22E.
• CapitaLand Integrated Commercial Trust's balance sheet remains strong, and we see upside from acquisitions, as management escalates its capital recycling efforts, backed by its sponsor’s Singapore AUM.

Improving Retail Rental Reversions

• CapitaLand Integrated Commercial Trust's retail occupancy was lower at 96.6% in 1Q22 (vs 96.8% in 4Q21 and 97.1% in 1Q21), due we think to Clarke Quay and Raffles City, with the latter undergoing AEI. Rental reversion improved to -1.3% (vs -3.2% for FY21) and was better at its suburban malls at +1.0% (vs +0.2%), while its downtown assets came in at -3.1% (vs -7.7%).
• Like peers, tenant sales was stronger (at above pre-pandemic levels) and ahead of improvement in footfall. We see room for rents to strengthen with further easing of capacities in FY22.

Tailwinds From Office Recovery, Rents Strengthening

• CapitaLand Integrated Commercial Trust's office occupancy was rising Grade A rents.
• Management sees positive reversion for the portfolio in FY22, with higher contribution from CapitaSpring, 21 Collyer Quay and 6 Battery Road underpinning recovery.

Stepping Up Acquisitions in Singapore

• CapitaLand Integrated Commercial Trust's gearing increased to ~41%, pro-forma (from 37.2% at end-Dec 2021), as three new Australian assets and 79 Robinson Road offset the divestment of JCube.
• CapitaLand Integrated Commercial Trust's balance at 5.2% FY22E dividend yield and 1.0x P/B vs history and peers. BUY.

Source: Maybank Research - 5 May 2022