Analyst Note| Xavier Lee |
Narrow-moat CapitaLand Integrated Commercial Trust’s, or CICT’s, third-quarter 2022 business updates were largely in line with our expectation. After a below-expectation Singapore office leasing performance in the previous quarter, CICT finally capitalized on the tightening supply of Singapore central business district, or CBD, office space to post a strong uptick in committed office occupancy rate to 96.0% this quarter from 92.9% in the previous quarter. Two of the underperforming office assets highlighted in our previous earnings note—Capital Tower and Six Battery Road—improved strongly to achieve committed occupancies of 90.7% and 91.2%, respectively, this quarter, from 77.1% and 87.4% in the previous quarter. This reaffirms our view that the weak leasing performance in the previous quarter was transitory in nature. We fine-tuned some of our acquisition, lease up, debt and exit cap rate assumptions and trimmed our fair value estimate slightly to SGD 2.32 from SGD 2.42. Following the market selloff over rising interest rate concerns, we think that a buying opportunity has emerged for long-term investors who are willing to look past the current rate hike cycle. CICT remains our preferred pick for its portfolio of high-quality office and retail assets that have proven resilient through economic cycles. Based on the current price, CICT trades at a 2023 distribution yield of 6.5%, which we believe is an attractive spread to the current Singapore 10-year government bond yield of 3.6%.