CICT's First-Half Earnings in Line, but DPU Disappoints; Rising Interest Rates Weigh on FVE

CapitaLand Integrated Commercial Trust's first-half results were largely in line with our expectations. Gross revenue and net property income improved 6.5% and 6.2% year on year to SGD 687.6 million and SGD 501.6 million, respectively, making up 49.5% and 50% of our full-year estimate. However, distribution per unit only grew 0.8% year on year to SGD 0.0522 due to an enlarged unit base and timing difference between committed and actual occupancies for Asia Square Tower 2, Six Battery Road, and CapitaSpring. Despite the improving office outlook, leasing momentum seems to be slower for some of its office assets, namely Capital Tower and Six Battery Road, with occupancy rates that are still struggling at 77.1% and 87.4%, respectively. This is slightly disappointing, especially when compared with peers like Suntec City Office Towers, which was near full occupancy as of June despite the upcoming Guoco Midtown office competing for tenants at its doorstep. Nevertheless, we think these problems are transitory in nature and will be resolved, albeit over a longer-than-expected period. We remain optimistic on the improving Singapore office market and think that the lower occupancies for Capital Tower and Six Battery Road represent a good opportunity for the trust to secure a good rental rate for its vacant spaces.