DBS Group Research has maintained its “buy” call and $2.70 target price on CapitaLand Integrated Commercial Trust (CICT) following its 3QFY2022 business updates, on expectations of higher rental income contributions in the coming FY2023.
On Oct 21, CICT reported revenue and net property income increased by 14% and 13% y-o-y respectively, surpassing pre-pandemic levels.
CICT, which bills itself as Singapore’s largest proxy to commercial real estate, owns a portfolio of 26 office and retail properties worth $24.2 billion.
During the quarter, retail rent reversions have likely turned positive with an increase of 1.2%, led by the suburban malls, while its Singapore office portfolio was the “star performer” with occupancies crossing above 90%, lifting overall portfolio occupancy to 95.1% from 93.8% in 2QFY2022.
Tenant sales have also surpassed pre-pandemic levels and the REIT is raising service charges from 1QFY2023 onwards to offset rising costs including utilities.
According to DBS, investors ought to keep close tabs on CICT’s Australia properties, where occupancy remains “muted”.
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While the Singapore office portfolio enjoyed significant gains, it is moderating.
In addition, with higher rates, gearing and cost of debt is inching up, with gearing now at 41.2% vs 40.6% in 2QFY2022, while average cost of debt increased marginally to 2.5% vs 2.4% in 2QFY2022.
CICT’s hedging ratio is now relatively “stable” at 80% and according to DBS’ sensitivity analysis, a 100 basis point (bps) increase in floating rates would have 0.30 cent (around 3%) impact on CICT’s distribution per unit.
CICT shares closed on Oct 21 at $1.74, down 3.33% for the day and down 15.12% year to date.
