Brokers' take: Analysts largely favourable towards CICT after FY2021 results
ANALYSTS have upgraded or maintained "buy" calls for CapitaLand Integrated Commercial Trust (CICT), following the real estate investment trust's (Reit) earnings results for the financial year ended Dec 31, 2021.
In a report on Monday (Jan 31), RHB upgraded its call to "buy" while keeping its target price (TP) at S$2.20 on the back of a brightening outlook from easing restrictions, development contributions and the completion of asset enhancement initiatives (AEI).
DBS Group Research maintained its "buy" call but lowered its TP to S$2.45 from S$2.50 in a separate Monday report, citing its recent acquisitions of 101 Miller Street and Greenwood Plaza in Australia, and divestment of JCube.
Meanwhile, Maybank Securities on Sunday kept its "buy" call and TP of S$2.55, noting that the Reit's easing negative retail reversions, tailwinds from office sector recovery and traction from its improving net profit income all signal stronger fundamentals in FY 2022.
Shares of CICT closed flat at S$1.94 on Monday.
RHB analyst Vijay Natarajan upgraded his call as the current share price is 0.9 times its price-to-book ratio and could provide a good entry point for long term investors, despite likely share price volatility from near term rate hike concerns.
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For FY 2022, he expects the Reit's full-year distribution per unit (DPU) to rebound by 5 per cent through organic income growth, acquisition contributions, and lower rebates.
This will be aided by CICT likely lowering its rental waivers for the coming financial year to less than S$5 million, after it granted S$8.4 million in waivers in H2 FY 2021, less than half the waivers compared to the S$18.9 million in H1 FY 2021, he commented.
Natarajan also sees CICT's portfolio metrics improving, with office rental set to increase from 91.5 per cent, as Capital Tower and 6 Battery Road are in advanced leasing discussions to increase its occupancy rate to around 90 per cent.
As for retail occupancy, the analyst commented: "With the further easing of restrictions anticipated by Q2 2022, the occupancy rate is expected to stabilise at current levels with flattish to slightly negative rental reversions."
Planned AEIs for Raffles City, Clarke Quay and Funan to revamp the tenant mix should also strengthen its portfolio, as cash flow for previously enhanced assets 21 Collyer Quay and CapitaSpring will kick in after its initial rent-free period, he observed.
Meanwhile, DBS Group Research analysts Rachel Tan and Derek Tan's target price of S$2.45 is 1.2 times the Reit's price-to-net-asset-value ratio, which is 1 standard deviation above its historical average since its listing.
The analysts trimmed their FY 2022 and FY 2023 DPU estimates marginally by 0.3 per cent to 2 per cent due to the recent acquisitions and divestments.
However, they noted that CICT, as the largest S-Reit, is "too big to ignore" and that it will become a key beneficiary of Singapore's reopening, estimating CICT's DPU to increase by 12 per cent in FY 2022 and 2-year compound annual growth rate by 9 per cent - one of the strongest among its peers.
Additionally, CICT's heightened asset recycling pace could allow the Reit to redeploy its proceeds from the JCube divestment to a sponsor pipeline asset in Singapore, the analysts added.
Adding to the DBS Group Research analysts' view, Maybank Securities analyst Chua Su Tye also sees upsides from CICT's recent acquisitions, expecting the Reit's gearing to rise to around 40 per cent with 3 new Australian assets in Q1 FY 2022.
Retail rental reversions are likely to ease further, following rising retail occupancy and higher tenant sales, while office occupancy will increase to around 95 per cent through advanced negotiations of 17.7 per cent of net leasable area, the analyst noted.
Average rents for offices are also anticipated to improve in FY 2022 against rising Grade A rents, while contributions from CapitaSpring, 21 Collyer Quay and 6 Battery Road post-AEI should underpin DPU recovery, he added.
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