Analysts from CGS-CIMB Research, Citi Research, Maybank Kim Eng and UOB Kay Hian have maintained “add” or “buy” on CapitaLand Integrated Commercial Trust (CICT) as they see the REIT as “well placed” to benefit from a macro recovery.
Analysts from PhillipCapital and RHB Group Research have also kept their “accumulate” and “neutral” calls on the REIT as they see it on the mend albeit dampened by the containment measures brought about by the Covid-19 pandemic.
The analysts' remarks come as the REIT announced its business update for the 3QFY2021 on Oct 22.
See: CICT reports more than double NPI of $242.6 mil for 3QFY2021
CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei have maintained their target price of $2.56 as CICT’s gross revenue and net property income (NPI) for the 3QFY2021 ended September stood within their expectations at 24.5% and 25% of their FY2021 forecasts.
To them, the REIT’s retail segment is recovering gradually; it is well placed to tap into inorganic growth opportunities for its office segment as well.
While they believe the REIT is set to benefit from the recovery of the economy given its diversified and stable earnings profile, Lock and Eing have kept their distribution per unit (DPU) estimates for the FY2021 to FY2023 unchanged for the time being.
“Re-rating catalysts include more clarity on asset enhancement/redevelopment plans. Downside risks include slower-than-expected portfolio value creation and slower rental recovery outlook,” they write in an Oct 22 report.
Citi analyst Brandon Lee has given a target price estimate of $2.45 on CICT.
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
The way he sees it, CICT’s business update revealed a mixed operational climate within its two core sectors.
The retail sector has seen improved rent reversions although there is also marginal decline in shopper traffic and tenant sales q-o-q.
“On the office side, CapitaSpring is likely to be 90+% pre-committed at low-teens-rent by 4QFY2021, but elsewhere within selected parts of its portfolio, vacancy and negative reversion risks are present,” says Lee.
That said, CICT remains Lee’s top recovery Singapore REIT (S-REIT) due to its undemanding valuations.
He also expects the REIT to benefit from the expected re-opening of the economy by 1HFY2022.
On this, Lee sees “neutral share price impact, with improved retail metrics mitigated by weaker office occupancies”.
Maybank Kim Eng analyst Chua Su Tye has, too, kept his target price of $2.55.
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According to him, the REIT’s risk-reward remains favourable with its DPU recovery gaining traction from tenant expansion on the back of returning office demand.
The REIT’s valuations are also compelling at 5.5% dividend yield for the FY2022 and 1 times price-to-book (P/B) compared to its historical figures, as well as that of its peers.
Its retail segment has room for recovery to grow coming into the 4QFY2021 which is seasonally its strongest-performing quarter.
Chua also sees income contribution for its office segment in the 1HFY2022 from 21 Collyer Quay and 6 Battery Road to back DPU recovery for the REIT.
“We estimate divestment of One George Street could deliver $85 million in gains, at a $2,900 psf transaction value. Further ahead, redevelopment plans are medium-term catalysts to support DPU upside,” he writes.
In the FY2021 and FY2022, Chua estimates CICT’s DPU to improve by 20% and 6% y-o-y respectively. This, he says, is due to lower rental rebates to retail tenants and borrowing costs.
The REIT’s negative retail rental reversions are also expected to moderate in the FY2021 to FY2022 due to stronger tenant sales, particularly in its more resilient suburban malls.
Upside factors include an earlier-than-expected pick-up in leasing demand for its retail or office space, better-than-anticipated rental reversions, and accretive acquisitions ore redevelopment projects.
That said, downside factors include a prolonged slowdown in economic activity, termination of long-term leases and a sharper-than-expected increase in interest rates.-than-expected increase in interest rates.
UOB Kay Hian analyst Jonathan Koh has kept his target price of $2.39 on CICT as he sees “good things to come” upon the reopening of the economy.
While the REIT’s 3QFY2021 business update stood in line with his estimates, Koh has reduced his DPU estimates for the FY2022 by 2%.
This is due to higher negative rental reversion of 8% for downtown malls (from -5% previously), as well as the delay in contribution from CapitaSpring to the 2HFY2022.
To him, a catalyst in the REIT’s share price would be a “gradual but steady recovery in shopper traffic and tenant sales, accompanied by progressive easing of social distancing measures”, as well as “asset enhancement and redevelopment of existing properties”.
He adds that the return of vaccinated employees to offices beginning from Jan 1, 2022, will lead to an improved physical occupancy for CICT’s office buildings and bring relief to its downtown malls.
“CICT would benefit as the recovery broadens to offices and downtown malls in 2022,” he says, with an estimated distribution yield of 5.3% for the FY2022.
Before then, the pressure on its downtown malls are likely to persist till the 1HFY2022, as retail leases accounting for 36% of its gross rental income (GRI) will expire in 2022.
PhillipCapital analyst Natalie Ong has also kept her target price of $2.54 as the REIT’s revenue and NPI for the 9MFY2021 stood in line with her forecast for the FY2021.
To Ong, positive factors include a recovering sentiment among the REIT’s tenants, while negative factors include the tightened restrictions, which dampened leasing.
At this point in time, there is no change to Ong’s forecasts.
According to her, CICT’s current share price (as at Oct 25) implies DPU yields of 4.8% and 5.6% for the FY2021 and FY2022 respectively.
“Catalysts could include stronger-than-expected sales growth, asset enhancement initiatives to unlock value and portfolio reconstitution,” she says.
RHB analyst Vijay Natarajan is the only analyst to up his target price to $2.20 from $2.10, even though he has kept his “neutral” call on CICT.
According to him, the REIT’s 3QFY2021 business update reflected a slight sequential improvement in terms of tenant sales and office leasing activity, but recovery remains uneven across sectors.
For the FY2021 to FY2022, Natarajan expects rent reversion to stay negative at an average of -5%.
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He also foresees the REIT to divest its 50% stake in One George Street in the near term.
“Key catalysts are faster-than-expected retail sector recovery from the economy reopening and return of overseas visitors, while prolonged imposition of lockdown measures remains its key risk. Current P/BV of 1.1 times has priced in most of the positives, in our view,” he writes in an Oct 25 report.
He has also given CICT a high environmental social and governance (ESG) score of 3.33 out of 4.0 due to CICT’s active ESG focus with “well-defined interim sustainability targets”.
“As this score is three notches above our country median score, we apply a 6% premium to our intrinsic value.”
Units in CICT closed flat at $2.15 on Oct 29, with an FY2021 P/NAV of 1.05 times and distribution yield of 4.8%, according to PhillipCapital’s estimates.
Photo: CICT
