Analysts are generally positive about Capitaland Integrated Commercial Trust (CICT) as they largely see gradual but surer signs of recovery on the horizon.
CICT reported 1QFY2022 ended March revenue and net property income (NPI) of $339.7 million and $248.3 million respectively, up 1.5% and 0.5% y-o-y, on higher revenue across all segments, partly offset by the rise in utilities expenses as it had hedged energy cost for FY2022 at higher rates.
Gearing was at 39.1% at end-1QFY2022 with 85% of total debts hedged to fixed rates.
Management also indicated that CICT's focus in 2022 would be to remain agile and be proactive in managing costs.
In addition, CICT reported 1QFY2022 retail revenue and NPI of $142.6 million and$101.8 million respectively– a fairly stable level y-o-y. Retail occupancy stood at 96.6% at end-1QFY2022 and tenant sales also improved 0.6% y-o-y even as shopper traffic declined 5.3% y-o-y.
Meanwhile, retail rental reversion came in at 4.1% down, dragged down by weaker reversion of -7.1% for downtown malls.
For office revenue, there was slight growth to $97.6 million in 1QFY2022, although NPI from the office segment was flat at $74 million.
Its occupancy improved q-o-q to 91.4% with the bulk of increase coming from the Singapore portfolio, with rental reversion up 9.3% y-o-y, with a 95.5% retention rate.
Following the REIT’s results, CGS-CIMB Research analyst Lock Mun Yee has kept an “add” rating on CICT with an unchanged target price of $2.57.
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The analyst finds that CICT’s results were broadly in line with her expectations, with the NPI at 23.3% of her FY2022 forecast.
She was also upbeat on CICT’s high portfolio occupancy rate and higher tenant sales for the quarter.
In addition, CICT’s new contributions look set to boost its office income from 2QFY2022 onwards. The REIT completed the acquisition of 66 Goulburn St and 100 Arthur St in Australia in March as well as the purchase of 70% of CapitaSky in April.
“We expect contributions from these new properties to be felt from 2QFY2022 onwards,” says Lock. “Looking ahead, we believe CICT remains well-positioned to explore inorganic growth opportunities.”
The team at OCBC Investment Research has also kept their “buy” call on CICT as the REIT’s results reflect “gradual but surer signs of recovery”.
The team is so confident on the REIT, it has upped their target price to $2.57 from $2.49.
However, the team has lowered its distribution per unit (DPU) forecasts for the FY2022 and FY2023 by a respective 1.1% and 1.3% following the 70.0% acquisition in CapitaSky and higher utility costs.
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“Utilities formed 9.2% of CICT’s property operating expenses in the FY2021”, note the team. “Management said that it has hedged its energy cost for 2022, but contracted tariff rates are almost 90% higher than 2021.”
In their report, the team sees CICT as a good proxy to the reopening theme due to its diverse exposure to the suburban and downtown retail market and core central business district (CBD) office sector in Singapore, coupled with a small exposure to Germany. CICT has also recently penetrated the Australian office market.
In Singapore, following the relaxation of various community Safe Management Measures (SMMs) on March 29, CICT highlighted that its shopper traffic saw an improvement of 4.3% for the following four weeks from the effective relaxation date to the prior four weeks.
“Notwithstanding the near-term impact from higher utility costs, we raise our terminal growth assumption from 1.25% to 1.5% given the current office upcycle and firmer signs of recovery in the retail sector, including the expected positive impact from recent easing of SMMs,” says the research team.
“We also increase our risk-free rate assumption from 2.1% to 2.5% but this is offset by a lower beta input,” they add.
Maybank Securities analyst Chua Su Tye has also kept a “buy” rating on CICT with an increased target price of $2.60 from $2.55.
Chua has also upped his DPU estimates by 2% as he sees CICT’s improving NPI as leading to stronger fundamentals in the FY2022. In his report on May 5, Chua expects CICT’s DPUs to improve by 12% y-o-y and 3% y-o-y in FY2022 and FY2023 due to higher occupancies and rents in Singapore, as well as asset contributions in Australia.
The analyst is positive on CICT’s strong balance sheet. He also sees the REIT benefitting from acquisitions as management escalates its capital recycling efforts and backed by its sponsor’s Singapore assets under management (AUM).
In addition, Chua also sees room for rents to strengthen with further easing of capacities in FY2022, where like its peers, tenant sales were stronger at above pre-Covid-19 levels and ahead of improvement in footfall.
“We think management is likely eyeing a larger Singapore acquisition from its sponsor, which could be potentially timed with an equity fundraising (EFR),” says Chua.
Finally, DBS Group Research team has also kept a “buy” rating on CICT with an increased target price to $2.70 from $2.45.
The research team estimates that CICT could deliver a 6% two-year CAGR, one of the stronger growth rates among its peers.
This is in light of how CICT is one of the few S-REITs that has the opportunity to acquire newly completed prime Singapore office assets, such as the remaining 50% stake in CapitaSpring, with potentially more commercial Singapore assets in the sponsor pipeline.
“Given the strong upward trajectory in the Singapore office market, we believe CICT, as the largest S-REIT with a Singapore-centric commercial portfolio, is well positioned to ride on the office upcycle,” writes the research team.
Units in CICT closed at $2.31 on May 5 at a FY2022 P/B ratio of 1.16x and dividend yield of 4.82% according to CGS-CIMB’s estimates.
Photo: Capitaland
