CapitaLand Integrated Commercial Trust - OCBC Investment 2023-10-27: Healthy Operating Metrics But Higher Gearing Leaves Little Comfort

• Soft market conditions led to a 2% q-o-q decline in CapitaLand Integrated Commercial Trust's 3Q23 net earnings.

3Q23 NPI only grew 0.6% y-o-y to S$275.0m

• CapitaLand Integrated Commercial Trust (SGX:C38U)’s 3Q23 gross revenue rose 4.6% y-o-y to S$391.3m but NPI increased at a smaller magnitude of 0.6% y-o-y to S$275.0m, thus translating to a compression in its NPI margin by 2.8 ppt y-o-y to 70.3%.
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• For 9M23, CapitaLand Integrated Commercial Trust’s gross revenue and NPI grew 9.8% and 6.8% y-o-y to S$1,166.1m and S$827.3m, respectively, with the latter accounting for 76.5% of our FY23 forecast.

Solid rental reversions for both retail & office portfolios

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• Tenants’ sales on a per square foot (psf) basis improved 4.0% y-o-y (suburban malls: +3.0%; downtown malls: +6.3%) for 9M23, a slowdown as compared to 1H23 (+6.0%).
• Shopper traffic grew 12.9% y-o-y (1H23: +17.5%).
• Occupancy costs inched up slightly to 16.9% as compared to the preceding quarter, with suburban malls at 15%+ and downtown malls at 18%+, both of which are at healthy levels, in our view.
• For CapitaLand Integrated Commercial Trust’s Singapore office portfolio, rental reversions came in at 8.8% for 9M23, a moderation as compared to the 9.6% uplift recorded in 1H23. Management expects rental reversions to come in around the mid-single digit level for both its retail and office portfolios.

Broad-based increase in committed occupancy rates for all three core segments

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OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2023-10-27 SGinvestors.io

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