1Q22: Triple-Play On Reopening In Singapore
Negative rent reversion for CICT’s portfolio of retail malls narrowed from -7.3% in 4Q21
to -4.1% in 1Q22. CICT achieved strong positive rent reversion of 9.3% for its office
properties, driven by Capital Tower and The Atrium@Orchard, while occupancy
improved 1.9ppt qoq to 92.3%. CICT’s downtown malls, suburban malls and office
buildings benefit from the reopening. CICT provides distribution yields of 5.0% for 2022
and 5.3% for 2023. Maintain BUY. Target price: S$2.46.
RESULTS
• CapitaLand Integrated Commercial Trust (CICT) provided a business update for 1Q22.
• Suburban malls remained resilient. Retail occupancy was stable at 96.6% in 1Q22.
Tenant sales at suburban malls are already 1% above pre-COVID-19 levels, while tenant
sales at downtown malls remain 14% below pre-COVID-19 levels. Management estimated
negative rental reversion at 4.1% in 1Q22, based on incoming first year rents vs outgoing
final year rents (suburban malls: -0.2%, downtown malls: -7.1%). Food & Beverage
accounted for 36% of new retail offerings and expansion, followed by Beauty & Health at
22% and Fashion at 14%. Retention rate was healthy at 91% (2021: 82.3%).
• Transitory vacancies progressively backfilled. CICT achieved strong positive rent
reversion of 9.3% driven by Capital Tower and The Atrium@Orchard. Retention rate was
high at 95.5% (2021: 69.3%). Occupancy for Singapore office improved 1.9ppt qoq to 92.3%
in 1Q22. We understand that CICT is in advanced negotiations to finalise a lease agreement
with ByteDance to backfill 120,000sf of office space at Capital Tower vacated by JPMorgan.
If successfully closed, the new tenant would bring occupancy at Capital Tower back to 94%.
Occupancy at Six Battery Road improved 8.7ppt qoq to 88.4%, while occupancy at Raffles
City Tower also improved 2.7ppt qoq to 96.1%. Committed occupancy at Capital Spring has
improved 7ppt qoq to 98.5%.
• Resilient balance sheet to weather uncertainties in external environment. Aggregate
leverage increased 1.9ppt qoq to 39.1% in 1Q22. Aggregate leverage would further increase
to 41% after completing the acquisition of 101-103 Miller Street and Greenwood Plaza (50%
stake) and CapitaSky (formerly known as 79 Robinson Road) (70% stake). Average term to
maturity is 3.9 years and 85% of its borrowings are hedged to fixed interest rates. It has
facilities in place to refinance debt due in 2022.
STOCK IMPACT
• Triple-play on reopening in Singapore. Safe distancing between individuals is no longer
required, whether indoors or outdoors. The cap on group size of 10 persons for dining in at
F&B establishments has been lifted since 26 Apr 22. All employees are allowed back to their
workplaces since 26 Apr 22, compared with the previous limit of 75%. The substantial
easing will improve shopper traffic and tenant sales at CICT’s downtown and suburban malls
and increase physical occupancy at its office buildings.
• AEI for RCS. CICT will commence asset enhancement initiatives (AEI) for the three floors of
retail space at Raffles City Singapore (RCS) previously occupied by Robinsons. It plans to
reconfigure 111,000sf of retail space into smaller units for specialty retail and large format
stores. New offerings include Calvin Klein, Acqua di Parma, Elemis and House of Wei. 50%
of the retail space is pre-committed. Management targets completion by 4Q22.
• AEI for CQ. The JV between CapitaLand (CICT’s sponsor) and City Developments to
redevelop Liang Court will rejuvenate the surrounding area around Clarke Quay (CQ). CICT
could enhance CQ by changing the trade mix to complement Liang Court. Management
could reposition CQ to serve the residential population within the vicinity and introduce more
tenants that operate during the day (a departure from the current orientation towards
nightlife).
• Negative impact from higher cost of electricity. CICT has already experienced a 90%
increase in cost of electricity during 1Q22. Management expects cost of electricity to
increase by another 10% in subsequent quarters.
EARNINGS REVISION/RISK
• We trim our 2023 and 2024 DPU forecasts by 1% due to higher cost of electricity.
VALUATION/RECOMMENDATION
• Maintain BUY. Our target price of S$2.46 is based on the Dividend Discount Model (cost of
equity: 6.0%, terminal growth: 1.2%).
SHARE PRICE CATALYST
• Recovery in shopper traffic and tenant sales at retail malls and improvement in physical
occupancy at office buildings with the easing of social distancing measures.
• Asset enhancement and redevelopment of existing properties.