CICT Earnings: Travel Recovery Boosts Retail Assets; Australia Office Shows Signs of Recovery

CapitaLand Integrated Commercial Trust C38U first-half 2023 results were largely in line with our expectations. Gross revenue and net property income improved 12.7% and 10.1% year on year to SGD 775 million and SGD 552 million, respectively, making up 50% and 49% of our full-year estimates. However, distribution per unit grew only 1.5% year on year to SGD 0.053 as a result of higher-than-expected borrowing costs. We adjusted our near-term cost of debt assumptions, raising it slightly for 2023, but we assume that interest rates will pivot from 2024. Our fair value estimate of SGD 2.32 remains unchanged. We think the trust is undervalued at the current price, trading at a 2023 dividend yield of 5.3%. We continue to like it for its portfolio of high-quality office and retail assets that have proved to be resilient through economic cycles.

First-half 2023 shopper traffic and tenant sales grew 17.5% and 6% year on year, respectively, with the trust’s downtown malls tracking ahead of its suburban malls due to the recovery of tourism. The recovery also translates to better leasing demand from retailers as the trust registered positive rental reversions of 6.9% for first-half 2023. We believe there is still room for improvement for the trust’s downtown malls as the recovery of mainland Chinese tourists was moderated by flight capacity constraints. However, we expect this to ease progressively through the next 12 months.