Analysts are remaining positive on CapitaLand Integrated Commercial Trust C38U ’s (CICT) prospects after the REIT announced a “resilient” operational performance for the 1QFY2024 ended March 31.
On April 19, CICT reported a net property income (NPI) of $293.7 million for the quarter, 6.3% higher y-o-y, due to higher rental income and lower operating costs.
CGS International analysts Lock Mun Yee and Natalie Ong have kept their “add” call and target price of $2.18 as they note CICT’s “robust” portfolio performance in the 1QFY2024. The REIT’s portfolio occupancy remained high at 97% with positive rental reversions across its property segments.
Lock and Ong have also kept their distribution per unit (DPU) estimates for the FY2024 to FY2026 unchanged.
Citi Research analyst Brandon Lee also kept his “buy” call and target price unchanged at $2.20 after CICT’s 1QFY2024 business update revealed largely positive operational metrics. Of note, is the REIT’s “solid” positive rent reversions in both its office and retail portfolios. At its results briefing, the REIT’s manager indicated that it expects high-single-digit positive reversions for both sectors in FY2024. Portfolio occupancy is also expected to remain steady at 97%.
That said, CICT’s gearing remained high at 40% as at March 31, which is a concern to Lee.
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“We believe CICT needs to expedite its asset divestment pace to free up debt headroom for external growth. CICT hopes to do something on portfolio reconstitution this year, with potential buyers for its assets (which it is looking to sell above book value) likely taking a wait-and-see approach due to uncertain interest rate outlook, though Singapore assets continue to see interest,” he writes.
In their report, CGS’s Lock and Ong also points out that the REIT’s manager indicated that its average funding cost for FY2024 could range from mid-to-high 3% compared to its previous guidance of mid-3% in a higher-for-longer interest rate environment.
As at Lee’s report dated April 19 (Singapore time), CICT, which is down by 10% year-to-date (ytd), may have outperformed the larger Singapore REITs (S-REITs) sector at -13% ytd, the analyst still sees value at its existing 0.9 times P/B and FY2024/FY2025 yields of 6.0%/6.0%. Asset divestments are a key share price catalyst, he adds.
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RHB Bank Singapore analyst Vijay Natarajan has kept his “buy” call and target price of $2.20 after CICT’s “resilient” quarter.
“Office double-digit rent reversions slightly surprised on the upside and management upped its rent reversion expectations for office and retail portfolio to high-single digits (from mid-single digits) on the back of healthy demand,” he writes, with CICT’s overall portfolio occupancy expected to remain stable.
Like Citi’s Lee, Natarajan also sees asset recycling as a “likely catalyst” with the REIT trading at below its book level.
The securing of the European Central Bank (ECB) as an anchor tenant for its 38-storey Grade A office building, Gallileo, should result in a “good valuation uplift” for the asset during CICT’s year-end revaluation, he adds.
Maybank and OCBC lower TPs
While the analysts at Maybank Securities and OCBC Investment Research (OIR) kept their “buy” calls, they have lowered their target prices.
Maybank Securities analyst Krishna Guha still likes the REIT for its Singapore-centric “resilient earnings profile”, strong credit and estimated yield of 5.9% for the FY2024. He is also positive on CICT’s strong reversions in its 1QFY2024 update.
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Calling CICT’s update a “mixed bag”, Guha also notes the lower occupancy and higher funding cost guide. As such, he has lowered his target price estimate to $2.05 from $2.10. The lower target price comes as Guha tweaks his DPU estimates after factoring in slightly higher margin and borrowing costs.
OIR’s research team lowered its fair value estimate to $2.14 from $2.18 after also trimming its DPU estimates by 0.3% and 1.1% for the FY2024 and FY2025 respectively. The lowered DPUs come after weaker Australian dollar (AUD) assumptions and after factoring in the ECB lease. The ECB lease will only commence from 2H2025 after the asset undergoes an asset enhancement initiative (AEI) that will cost the REIT EUR180 million ($261.2 million).
That said, the OIR team remains positive on CICT with its “stable operational performance” and continued positive leasing momentum for its retail operations.
As at 11.12am, units in CICT are trading 4 cents higher or 2.14% up at $1.91.
