CapitaLand Integrated Commercial Trust: In-Line Business Update; Units Undervalued

CapitaLand Integrated Commercial Trust’s third-quarter business update was in line with our expectations. Aside from the acquisition of ION Orchard, the trust had an uneventful but stable quarter. Operating metrics remain resilient with a portfolio occupancy rate of 96.4% as of end-September 2024, 0.4 percentage points lower from end-June 2024 due to higher vacancy for its Main Airport Center. Management shared that the supply/demand dynamics for Main Airport Center remain slightly challenging, but it is working to lease up the vacancy. Meanwhile, the trust’s rental reversions remain healthy as it posted cumulative nine months positive rental reversions of 9.2% and 11.7% for its retail and office portfolios, respectively. We raise our 2025-26 borrowing cost assumptions following management’s guidance, which led to a 3.5%-5.0% cut in our 2025-28 distribution per unit estimates. Our fair value estimate of SGD 2.32 remains unchanged. Based on the current price, we think the trust is undervalued and trades at an attractive 2025 dividend yield of 5.6%.