Preferred recovery trade, BUY
CICT’s revenue/ NPI/ DPU were up 2.1% HoH/ 1.4% HoH/ 0.8% HoH in 2H21, as contributions rose across its retail, office and integrated development assets. FY21 DPU at SGD10.40cts was slightly behind our estimate but in line with the street. Easing negative retail reversions, tailwinds from office sector recovery, and traction from improving NPI, suggest stronger fundamentals in FY22E. Its balance sheet remains strong, and we see upside from acquisitions, as management escalates its capital recycling efforts, backed by its sponsor’s Singapore AUM. Valuations are compelling at 6.0% FY22E div. yield and 1.0x P/B vs history and peers. Maintain BUY and DDM-based TP of SGD2.55 (COE: 5.9%, LTG: 1.5%).
Negative retail reversions to ease further
Retail occupancy rose to 96.8% (from 96.4% in 3Q21) after falling since 4Q20, with better occupancies except for Clarke Quay (fell from 79.4% to 73.5%) and Plaza Singapura (98.1% to 97.3%). Rental reversion at -3.2% for FY21 improved from -4.5% in 1H21, and was better at its suburban malls at +0.2% (from -1.4% in 1H21) where signing leases are above pre-Covid levels, vs its downtown assets at -7.7% (from -8.9%). Like peers, tenant sales in Dec were stronger at 85-105% of 2019 levels, vs 77-96% for FY21,
and continued to track ahead of shopper traffic at 56-65%. We see room for recovery to strengthen with further easing of capacities in FY22.
Tailwinds from office recovery, rents to strengthen
Office occupancy was lower at 91.5% (from 92.6% in 3Q21) mainly due to Capital Tower (from 97.2% to 76.8%) with JPM’s relocation to CapitaSpring, but advanced negotiation for 17.7% of the NLA should lift its occupancy to c.95% by end 1Q22. Leasing activity (at c.257k sf versus c.172k sf in 3Q21) rose from new and relocation demand, as committed occupancy improved at Asia Square Tower 2 and CapitaSpring to 95.6% and 91.5% (from 82.8% and 83.1% at end-Sep 2021). Average rents rose 2.6% QoQ to SGD10.33
psfpm vs -1.8% QoQ in 3Q21, and are likely to improve in FY22 against rising Grade A rents, while income contribution from CapitaSpring, 21 Collyer Quay and 6 Battery Road (post-AEI), should underpin DPU recovery.
Stepping up acquisitions in Singapore
CICT’s AUM was up 3.5% YoY to SGD22.5b with CapitaSpring’s TOP and a stronger rental outlook across its Singapore commercial assets. Gearing fell to 37.2% from 40.9% at end-Sep 2021, and should rise to c.40%, with 3 new Australian assets from 1Q22. Its balance sheet remains strong, and management expects to intensify deal momentum in FY22 as it redeploys its JCube sales proceeds, towards its sponsor’s Singapore AUM.