Analysts are mixed on their outlook for CapitaLand Integrated Commercial Trust (CICT) after the REIT posted its results for the 1HFY2022 ended June on July 28.
For the half-year period, the REIT’s distribution per unit (DPU) came in at 5.22 cents, up 0.77% y-o-y.
These analysts kept their “buy” calls…
Analysts from Citi Research and Maybank Securities are more positive on the REIT with “buy” calls and unchanged target prices of $2.35 and $2.55 respectively.
The research team at OCBC Investment Research has also kept its “buy” call with a lowered fair value estimate of $2.42 from $2.57 previously. This comes even if the team sees “positive signs of recovery” for CICT and view the REIT as a good proxy to the reopening theme.
However, the REIT’s 1HFY2022 results fell short of the team’s expectations, with DPU for the six-month period accounting for only 45.9% of the OCBC team’s initial forecast for the FY2022.
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“Although we had expected CICT’s DPU to be backend loaded in FY2022 given more meaningful contributions from CapitaSpring and 21 Collyer Quay in 2HFY2022, this set of results still fell short of our expectations,” the team writes.
“Part of this miss was due to timing differences, as we had assumed earlier contributions from its acquisitions in Australia, but completion dates came in later than our assumptions,” it adds.
On this, the team at OCBC has lowered its DPU forecasts for the FY2022 and FY2023 by 3.5% and 2.7% respectively.
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In its results statement, CICT reported aggregate leverage of 40.6%, which was up by 1.5 percentage points q-o-q.
According to CICT, every 100 basis points (bps) increase in interest costs is estimated to negatively impact its DPU by 0.28 Singapore cents, or 2.5% of OCBC’s FY2022 DPU forecast, the team notes.
The lowered target price was due to the DPU changes, offset by an upgrade in its environmental, social and governance (ESG) rating in July, explains the team.
Citi Research analyst Brandon Lee is taking on a more positive look at CICT even if the REIT’s 1HFY2022 DPU also missed his expectations, coming in at 45% of his full-year estimates.
“CICT’s 1HFY2022 performance reflects the strength of Singapore’s office sector (evidenced by high-single-digit positive reversion and decent occupancy improvement), mitigated by mixed retail performance (slight positive reversion and strong tenant sales/traffic, mitigated by slight occupancy fall),” the analyst says in his July 27 report.
“[Despite the DPU miss for the 1HFY2022], we expect 2HFY2022 to be much stronger in view of full-period contributions from four acquisitions and pick-up in revenue-generating occupancies of three offices,” he adds.
While Lee likes CICT’s Grade A office portfolio and sees it as a “strong contender” for the Mercatus portfolio, the analyst says he still prefers fellow Singapore REIT (S-REIT) Lendlease Global Commercial REIT (LREIT) due to its higher yields.
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In his July 28 report, Maybank Securities analyst Chua Su Tye expressed similar sentiments as his peer.
Like Citi’s Lee, Chua is expecting to see stronger fundamentals from CICT in the 2HFY2022 easing negative retail reversions, tailwinds from office sector recovery, and traction from improving net property income (NPI).
He adds that he sees room for rents to strengthen in the 2HFY2022 as sentiment recovers among retailers. Chua also sees CICT’s office occupancy to increase in the same period, in line with the higher committed occupancy (of [around] 87%-100%) for Asia Square T1, 6 Battery Road and Capital Tower.
“Rents rose 0.4% q-o-q on average to $10.53 per sq ft per month (psf pm) in 2QFY2022 (vs +1.5% q-o-q in 1QFY2022), and should increase further on demand growth and tight supply,” Chua explains. “CICT sees positive reversion for the portfolio in FY2022, with higher contribution from CapitaSpring, 21 Collyer Quay and 6 Battery Road underpinning NPI recovery.”
Finally, Chua notes CICT’s strong balance sheet, and sees upside from deals as CICT’s management eyes growth for its Singapore assets under management (AUM).
Similar to Citi’s Lee, Chua also expects CICT to be a contender for the Mercatus assets.
“[A Singapore acquisition from its sponsor or the Mercatus assets], which could be co-invested, could be accretive if debt-funded at a 4.5% cap rate,” says Chua.
Further to his report, Chua sees CICT’s DPUs to improve by 12% y-o-y and 3% y-o-y in the FY2022 and FY2023 due to higher occupancies and rents in Singapore and Australian asset contributions.
In addition, the analyst sees negative retail rental reversions to moderate in FY2022 due to stronger tenant sales, especially for its more resilient suburban malls, and NPI contributions from CICT’s office properties to recover in the FY2022 after asset enhancement initiatives (AEIs) at 20 Collyer Quay and 6 Battery Road.
CapitaSpring post-development is also expected to contribute positively to CICT’s NPI during the period.
… while these analysts are remaining “neutral” on the counter
UOB Kay Hian analyst Jonathan Koh has kept his “hold” call on CICT with an unchanged target price of $2.34, even as CICT’s results stood in line with his expectations.
Koh sees CICT being a “triple-play” on the reopening theme in Singapore.
“The substantial easing [of restrictions] will improve shopper traffic and tenant sales at CICT’s downtown malls and increase physical occupancy at its office buildings,” he writes.
In addition, the potential acquisition of the Mercatus portfolio would strengthen CICT’s defensive posture but requires an equity fund-raising exercise, given the scale of the acquisition.
“We expect the properties to be enhanced post acquisition to optimise returns,” says Koh.
At its share price of $2.14 as at Koh’s report dated July 29, CICT provides an FY2022 distribution yield of 5.3%.
Koh has kept his DPU forecasts unchanged.
RHB Group Research analyst Vijay Natarajan is the most negative on CICT even if he has maintained his “neutral” call.
In his report, Natarajan has lowered his target price of $2.30 from $2.35 as CICT’s 1HFY2022 results came in below expectations.
“Operationally, many of CICT’s assets are still ramping up, resulting in weaker income growth compared to peers,” he writes in his July 29 report. “The REIT has also been slightly more impacted from higher utility costs, with most of its hedges rolling over to high market rates.”
“With relatively high gearing, we believe accretive acquisitions are likely to be challenging, and see limited catalysts,” he adds, referring to CICT being a possible candidate for the Mercatus assets.
With the REIT’s high gearing of 40.6%, however, the analyst sees limitations in terms of DPU accretion.
That said, Natarajan still sees CICT’s Singapore office portfolio as a “bright spot” for the REIT, with occupancy improving q-o-q. The analyst is also upbeat on the retail sector, which is staging a recovery.
The analyst has lowered his DPU estimates for the FY2022 to FY2024 by 2%-3% after factoring in lower NPI margins. He has also given CICT a high ESG score of 3.3 out of 4.0.
“As its score is three notches above the country median, we apply a 6% ESG premium,” he says.
As at 11.31am, units in CICT are trading 1 cent lower or 0.46% down at $2.18.
