CICT’s 2H 2022 Earnings In Line but DPU Fell Short; Shares Undervalued

CapitaLand Integrated Commercial Trust’s, or CICT’s, second-half 2022 revenue and net property income improved 14.4% and 13.1% year on year to SGD 754.1 million and SGD 541.7 million, respectively, in line with our expectations. However, second-half distribution per unit, or DPU, fell below our expectations, growing only 2.7% year on year to SGD 0.0536 due to higher borrowing cost, an enlarged unit base, and upfront lease incentives given to tenants. Nevertheless, we see the DPU miss as a transitory, short-term pain that the trust must go through to reconstitute its portfolio, and we encourage investors to focus on the trust's strong fundamentals. We retain our fair value estimate of SGD 2.32 and continue to like the trust for its portfolio of high-quality office and retail assets that have proven to be resilient through economic cycles. Based on the current price, we think the trust is slightly undervalued.