UOB Kay Hian Research (UOB KH) analyst Jonathan Koh has upgraded CapitaLand Integrated Commercial Trust (CICT) to ‘buy’ with a higher target price of $2.42 from $2.32 previously.

The upgrade is underpinned by Koh’s view that CICT provides diversified exposure to the retail and office sectors, making it an ideal pure play on recovery in the domestic economy.

His higher dividend target price comes on the back of a higher distribution per unit (DPU) forecast by 1% for FY2022 ending December due to contributions from 21 Collyer Quay, which will be tenanted by WeWork, starting 4QFY2021.  

“CICT provides 2022 distribution yield of 5.5%, which is attractive given its scale and diversification,” he adds.


SEE:Analysts mostly positive on CapitaLand Integrated Commercial Trust, says REIT is on the way to recovery


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Koh is bullish on the recovery of retail spending, pointing out that CICT’s portfolio of malls already saw a retail sales recover 13.1% q-o-q in 4QFY2020, driven by the Phase 3 re-opening and rollout of vaccinations.

CICT’s 4QFY2020 saw suburban malls perform better, with tenant sales increasing 1.3% yoy while downtown malls fell 16.3% yoy. However, Koh sees the recovery broadening to downtown malls as restrictions further ease and more employees return to offices.

In addition, the potential travel bubbles with Hong Kong and Australia mark an impending return of tourists, though the gradual recovery could last three to five years before the volume of visitor arrivals returns to pre-pandemic levels. 

Looking ahead, Koh expects CICT to focus on enhancements for retail malls, such as Plaza Singapura, IMM, Raffles City Singapore and Clark Quay in the medium term.


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For CICT’s office portfolio, Koh highlights that demand is trickling back, driven by asset management companies, family offices and Chinese technology companies. However, rental reversion is expected to be slightly negative in 2021, in tandem with rents for grade A office space in the core CBD which have corrected 10% to $10.40 per square foot in 2020.

He also notes that notwithstanding the proposed restructuring of CapitaLand, the fundamentals of CICT remain unchanged as it still owns the same assets and its aggregate leverage remains unchanged.

In addition, while there may be selling pressure on CICT in the near term due to concerns that CapitaLand shareholders will sell the CICT units they receive as part of the restructuring, Koh doesn’t believe investors will switch from CICT to CapitaLand Investment Management (CLIM) over the longer term.

“We don’t think so because CLIM is a growth company that focuses on expansion of funds under management. CICT provides higher yield and is more suitable for insurers and income funds,” he says.

As at 11.36am, units in CICT are up 2 cents or 0.94% higher at $2.14.