On 19 April 2024, CapitaLand Integrated Commercial Trust (“CICT”) have announced their first quarter business update for 2024. There were no DPU updates, although we can determine that there were no significant negative impacts, given that there were no notable changes to gearing ratio and interest coverage while net property income saw an increase. This is a good sign that their portfolio continues to remain stable, and although the gearing ratio increased to unfavorable territory, CICT is less likely to face the risk of breaching covenants compared to other property profiles.
Website: General Announcement::1Q 2024 Business Updates
Photo source: https://fifthperson.com/cmt-cct-merger-pros-cons/
Background
CICT is the first and largest real estate investment trust (“REIT”) listed on Singapore Exchange Securities Trading Limited (“SGX ST”). It made its debut on SGX ST as CapitaLand Mall Trust (“CMT”) in July 2002 and was renamed CICT in November 2020 following the merger with CapitaLand Commercial Trust (“CCT”).
CICT owns and invests in quality income producing assets primarily used for commercial (including retail and/or office) purpose, located predominantly in Singapore.
CICT is managed by CapitaLand Integrated Commercial Trust Management Limited, a wholly owned subsidiary of CapitaLand Investment Limited (“CLI”), a leading global real estate investment manager with a strong Asia foothold.
Key Metrics
Distribution Per Unit (“DPU”)
| Metrics | Current | Previous |
|---|---|---|
| Distribution Per Unit | No Info | +1.6% |
Based on the announcement on 19 April 2024, DPU was not included in the business update for the first quarter of 2024. There is a mention however that the net property income for the first quarter of 2024 has increased by 6.3% year on year.
This metric was Favorable as of 31 December 2023 as DPU had increased by 1.6%.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 97.0% | 97.3% |
Occupancy rate worsened slightly to 97.0% as of 31 March 2024. This is still Favorable as it is above my expected healthy occupancy rate of 95%.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 40.0% | 39.9% |
Gearing ratio increased slightly to 40.0% as of 31 March 2024. This is Unfavorable as it is currently at my threshold of 40.0%. It is relatively high and close to the MAS limit of 50% when compared to other REITs.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 3.1x | 3.1x |
The interest coverage remains unchanged at 3.1 times as of 31 March 2024. The metric is Favorable as the interest coverage is above my preference of 3.0 times. Take note that there is currently uncertainty over interest rates, as the Federal Reserve on 2 May 2024 has signalled that US borrowing costs are likely to remain higher for longer, as it wrestles with persistent inflation across the world’s biggest economy. This was after increasing the interest rates to a range between 5.25% and 5.50% on 26 July 2023.
Website: Federal Reserve chair Jay Powell signals interest rates will remain higher for longer
As the interest rate may potentially increase further, CICT may be subjected to significant change in their cost of debt in the near future. In their presentation they have mentioned that 76% of their debt is also on fixed rates.
I have thus performed a sensitivity analysis using the information as at 31 March 2024:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $9,500,000 |
| Debt Not Hedged (%) | 24.0% |
| Debt at Floating Rate Exposed | $2,280,000 |
| Distributable Income FY2023 | $715,700 |
Interest rate sensitivity analysis as below:
| Change in Interest Rates | Decrease in Distributable Income (SGD’000) | Change as % of FY2023 Distribution |
|---|---|---|
| + 50 bps | -$11,400 | -1.6% |
| + 100 bps | -$22,800 | -3.2% |
| + 150 bps | -$34,200 | -4.8% |
| + 200 bps | -$45,600 | -6.4% |
| + 250 bps | -$57,000 | -8.0% |
| + 300 bps | -$68,400 | -9.6% |
Do note the above is my estimation which may be different from management’s estimation. Nonetheless, if the interest rates were to increase by the basis points above, CICT may experience a fall in DPU accordingly.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.8 years | 3.9 years |
Weighted average term to maturity of their debt has shortened slightly to 3.8 years as of 31 March 2024. This is Favorable and it allows them sufficient time to refinance their debts as they fall due.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 0.92 | 0.92 |
Based on the announcement on 19 April 2024, net asset value (“NAV”) was not included in the business update for the first quarter of 2024.
The Price to Book (“P/B”) ratio currently stands at 0.92. This is computed using the closing share price of SGD1.95 on 13 May 2024 and the net asset value per share of SGD2.13 as of 31 December 2023. The metric is Favorable as investors will not be paying a significant premium for a REIT with a strong sponsor.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2024 | 2.79% | SGD 0.055 |
| 2023 | 5.47% | SGD 0.107 |
| 2022 | 2.87% | SGD 0.056 |
| 2021 | 6.04% | SGD 0.118 |
| 2020 | 3.13% | SGD 0.061 |
As of 13 May 2024, with a closing share price of SGD1.95 and dividend payout of SGD0.107 per share for the full calendar year 2023, this translates to a dividend yield of 5.47%. For my benchmark, a general reasonable range would be around an average of 5.50% to 6.50% in the current environment. While my expected annualised dividend for 2024 is likely to be higher than 2023, CICT’s dividend yield is just below my benchmark. The dividend yield is Neutral.
Website: Reasonable Dividend Yield 2024Q2
Other metrics
Tenant profile
CICT has a well-diversified tenant profile with the top 10 tenants contributing to 19.3% of their total gross rent with no single tenant accounting for more than 5.2% during the period, providing income diversity to the portfolio.
Heartland Living
The Singapore government intend for every town to have a shopping mall available and successful. Such that they are willing to have measures to help support heartland businesses financially. This means that as an investor of retail properties, you can be assured that there will almost always be tenants for your shopping malls, which translates to rental income. It may still be subjected to capital depreciation and appreciation when exposed to economic conditions, such as the current high interest rates. However as of now, your interests are in line with the government.
Website: The Bull Case For Investing In Singapore Retail Property
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | No Info | Favorable |
| Occupancy | 97.0% | Favorable |
| Gearing Ratio | 40.0% | Unfavorable |
| Interest Coverage | 3.1x | Favorable |
| Debt Maturity Profile | 3.8 years | Favorable |
| Price to Book Ratio | 0.92 | Favorable |
| Overall | | Favorable |
Overall, the metrics indicate that it is currently still favorable to invest in CICT. With the gearing ratio and interest coverage remaining relatively the same, there may not be any significant DPU impacts on CICT. CICT therefore have remained relatively stable this quarter which is something that may give investors assurance in this current uncertain environment.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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Website: CapitaLand Integrated Commercial Trust (SGX: C38U): 2023 Full Year Result
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