UOB Kay Hian analyst Jonathan Koh has kept his “buy” call on CapitaLand Integrated Commercial Trust (CICT) on the back of the office sector gaining momentum and a gradual recovery for the retail sector.
Koh has also upped his target price estimate to $2.50 from $2.46 previously.
In his May 30 report, the analyst notes CICT’s positive prospects in both the office and retail sectors, as all employees have been allowed back to their workplaces since April 26.
There is also more room for CICT’s office occupancies to improve, on the back of its 1.9 percentage point q-o-q growth to 92.3% in the 1QFY2022 ended March.
Furthermore, CICT is now in “advanced negotiations” to finalise a lease agreement with ByteDance to backfill some 120,000 sq ft of office space at Capital Tower vacated by JPMorgan. If successfully closed, the new tenant would bring occupancy at Capital Tower back to 94%, Koh notes.
Occupancy at newly-acquired CapitaSky (70% stake) is also expected to improve 2.9 percentage points to 95.8%.
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“Rent reversion could be flat or slightly positive in 2022. Capital Tower should generate positive rent reversion due to low expiry rent of $5.99psf pm, offset by high expiry rent at Asia Square Tower 2 ($11.31psf pm), CapitaGreen ($11.33psf pm) and Six Battery Road ($11.67psf pm),” the analyst writes.
In addition, CICT will count technology giants, Amazon and Meta Platforms, as its tenants, as they pre-commit to the REIT’s new office supply. Both companies are currently in advanced negotiations to lease office space at IOI Central Boulevard Towers, the only new supply within core CBD over the next three years.
Amazon could take up 369,000 sq ft of office space covering 11 floors, representing 29% of the available office space of 1,258,000 sq ft from IOI Central Boulevard Towers. Amazon is expected to consolidate its presence at Marina Bay by keeping 90,000 sq ft of office space at CICT’s Asia Square Tower 2, which is linked to IOI Central Boulevard Towers by a second-storey link bridge.
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Consumer spending is also on the rise, with spending at department stores, wearing apparel & footwear, as well as cosmetics, toiletries & medical goods seeing double-digit growths in March.
The way Koh sees it, CICT’s downtown malls such as Bugis Junction, Funan, Plaza Singapura and Raffles City Singapore (RCS) are expected to lead the recovery, which are said to benefit more from the return of the office crowd, as well as tourists.
That said, rent reversion in the REIT’s retail portfolio could remain weak as retailers remain apprehensive.
“Retailers need a sustained period of recovery lasting 12-15 months before confidence is restored,” says Koh.
Due to the improving outlook for CICT’s office portfolio, Koh has upped his distribution per unit (DPU) estimates by 2% for the FY2022 and FY2023.
An uptrend in the office sector, as well a steady recovery in shopper traffic and tenant sales, as well as the asset enhancement and redevelopment of its existing properties are potential catalysts to CICT’s unit price.
Units in CICT closed 1 cent higher or 0.45% up at $2.23 on May 30.
