CICT target raised by UOB KH on office recovery

CapitaLand Integrated Commercial Trust building in Singapore’s Bugis neighborhood.CapitaLand Integrated Commercial Trust building in Singapore’s Bugis neighborhood.

UOB Kay Hian has raised its target price on CapitaLand Integrated Commercial Trust (CICT), saying the office recovery is gaining momentum, while retail is improving gradually.

The office outlook has improved in Singapore, with employees returning to workplaces after the Singapore government eased Covid-related restrictions in April, the brokerage said in a note Monday.

CICT is in advanced negotiations for new leases to fill spaces at the Capital Tower and CapitaSKy properties, which could improve occupancies by 18 percentage points and 3 percentage points, respectively, the brokerage said.

UOB Kay Hian said it understood CICT is in talks to finalise a lease agreement with ByteDance to take up 120,000 square feet of office space at Capital Tower vacated by J.P. Morgan.

“If successfully closed, the new tenant would bring occupancy at Capital Tower back to 94 percent,” the note said.

In addition, the brokerage estimated rent reversion could be flat to slightly positive in the office segment this year.

While more office supply is coming onstream with the IOI Central Boulevard Towers project, the brokerage noted that space is the only new supply in the core central business district (CBD) for the next three years, adding that Amazon may take up 11 floors of the space, and Meta Platforms is also in advanced talks for the project’s space.

For CICT’s retail properties, the brokerage said it expected recovery from downtown malls, such as Bugis Junction, Funan, Plaza Singapura and Raffles City Singapore (RCS), as those properties benefit more from the office crowd and tourists. But the note added, rental reversion is likely to be weak as retailers are apprehensive.

“Many retailers are adopting a wait-and-see approach before committing to new leases. Retailers need a sustained period of recovery lasting 12-15 months before confidence is restored. CICT’s rent reversion could remain weak due to potential change in tenant mix at some of its retail malls, such as Clark Quay,” UOB Kay Hian said.

The target price was raised to S$2.50 from S$2.46, UOB KayHian said; the brokerage raised its distribution per unit (DPU) forecast for 2022 and 2023 by 2 percent on the office portfolio’s improving outlook. UOB Kay Hian kept a Buy call on the units.

Units of CapitaLand Integrated Commercial Trust (CICT) were up 1.35 percent at S$2.25 at 3:29 p.m. SGT.