Analysts covering CapitaLand Integrated Commercial Trust (CICT) are mostly upbeat on its 1QFY2021 ended March business update which was released on April 26.
PhillipCapital kept its 'accumulate' rating with a higher target price of $2.54 from $2.50 previously. The higher target price factors in lower cost-of-debt assumptions upon refinancing and the restructuring of the CICT's Raffles City Singapore (RCS) hotel lease.
UOB Kay Hian Research and Maybank Kim Eng both retained their ‘buy’ calls and target prices of $2.42 and $2.55 respectively. Similarly, CGS-CIMB Research retained its ‘add’ call and target price of $2.56, while RHB Group Research kept its ‘neutral’ rating and target price of $2.10.
Meanwhile, OCBC Investment Research kept its ‘buy’ rating but with a lower target price of $2.51 from $2.60 previously on the back of a higher risk-free rate assumption.
PhillipCapital's Natalie Ong, UOB Kay Hian’s Jonathan Koh, CGS-CIMB’s Lock Mun Yee, and RHB’s Vijay Natarajan say that CICT’s gross revenue of $334.8 million (+63.9% y-o-y) and net property income of $247.1 million (+66.6% y-o-y) for the 1QFY2021 were in line with their expectations.
SEE:UOB Kay Hian upgrades CapitaLand Integrated Commercial Trust to 'buy', TP of $2.42
For CICT’s retail portfolio, the analysts were collectively positive on tenant sales which grew 2.9% y-o-y driven by suburban malls (+4.3% y-o-y). While tenant sales at downtown malls fell 1.2% y-o-y, Koh believes the divergence between suburban malls and downtown malls has narrowed as more shoppers are venturing to downtown malls as the economy recovers.
OCBC’s research team concurs. “Downtown mall sales have seen a strong improvement as compared to the 16.3% y-o-y dip registered in 4QFY2020,” the team says.
However, the analysts noted the dip in occupancy for the retail portfolio to 97.1% in the 1QFY2021 (down 0.9 percentage points), as well as the negative rental reversion, predominantly driven by downtown malls. "No reversion numbers were released but we understand that retail reversions were -5% on average," says Ong.
Koh anticipates the negative reversion to persist as tenants continue adapting to a post-Covid-19 world.
Maybank Kim Eng’s Chua Su Tye is more optimistic, believing rental reversion will moderate as retail recovery gains traction. “The rent-relief cycle seen in 3Q20 has peaked, with tenant expansion in 2021 - 2022,” he says.
The research team at OCBC takes a similarly upbeat stance, noting that the decline in retail rental rates narrowed versus FY2020 (-6.6%).
The analysts were more positive on CICT’s office portfolio, which kept occupancies unchanged at 94.9% for the 1QFY2021, with 291,800 square feet of new and renewal leases transacted.
Despite recording negative rental reversion, Lock anticipates office rental rates to flatten out. “With Singapore expiring rents at S$10.41psf, broadly in line with market, we anticipate relatively flat reversions going forward,” she says.
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Natarajan and the OCBC research team also positively view the increase in office leasing enquiries by 170% q-o-q with a large portion coming from relocation and expansion demand. However, Koh is not as optimistic on whether this will translate to actual leases. "Tenants remain unsure and tentative on their future space requirements and configurations," she says.
Meanwhile, Koh, Lock, Chua, and Natarajan highlighted the uptick in pre-commitments for CICT's CapitaSpring development to 50%.
Ong is also positive on the restructuring of the hotel RCS lease with Accor, which has been extended by five years from 2036 to 2041 with a rent review in January 2027. "The fixed component of the rent has been lowered by 11% - 19% while the variable component has been raised. If the hotel sector recovers to 2019 levels, the rent from Accor could be higher than that collected in 2019," she points out.
The analysts all agree that asset enhancement or redevelopment plans will be near-term catalysts for CICT.
As at 3.51pm, units in CICT are down 1 cent 0.46% lower at $2.18.
