On 13 August 2024, CapitaLand Integrated Commercial Trust (“CICT”) have announced their half year result for FY2024. CICT continues to remain stable this quarter, which is good in providing assurance to investors as we look towards the next few weeks for the potential interest rate cuts. With the disappointing US job growth from a government report on 6 September 2024, it seems almost certain that there will be an interest rate cut in September 2024, though the basis points that will be cut remains up for debate. With the high anticipation that interest rates will decrease soon, the share price had seen a spectacular increase the last few weeks.
Subsequent to results announcement, on 3 September 2024 CICT have announced equity fund raising of approximately SGD1.1 billion. This will be mainly used for the proposed acquisition of 50% interest in ION Orchard.
Website: Financial Statements And Related Announcement::Half Yearly Results
Website: Fed gets green light on rate cuts as US job growth disappoints
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 | +2.5% | No Info |
DPU for the first half of FY2024 increased by 2.5% to SGD0.0543 per share from SGD0.0530 per share for the same period in the previous financial year. This increase seems to be supported by their operations and hedging activities. The metric is Favorable.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 96.8% | 97.0% |
Occupancy rate worsened slightly to 96.8% as of 30 June 2024. The metric remains Favorable as it is above my expected healthy occupancy rate of 95%.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 39.8% | 40.0% |
Gearing ratio decreased slightly to 39.8% as of 30 June 2024. The metric shifted back to Neutral, though it remains close to 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 | 3.0x | 3.1x |
The interest coverage decreased slightly to 3.0 times as of 30 June 2024. The metric remains Favorable as the interest coverage is at my preference of 3.0 times.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.5 years | 3.8 years |
Weighted average term to maturity of their debt has shortened further to 3.5 years as of 30 June 2024. The metric remains 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 | 1.00 | 0.92 |
The Price to Book (“P/B”) ratio currently stands at 1.00. This is computed using the closing share price of SGD2.14 on 6 September 2024 and the net asset value per share of SGD2.13 as of 30 June 2024. The metric is Favorable as investors will be paying at book value for a REIT with a strong sponsor.
As of 6 September 2024, the Market Capitalization is approximately SGD14,908 million.
Dividend
| Year | Yield | Total |
|---|---|---|
| 2024 | 6.09% | SGD 0.130 |
| 2023 | 4.98% | SGD 0.107 |
| 2022 | 2.61% | SGD 0.056 |
| 2021 | 5.50% | SGD 0.118 |
| 2020 | 2.85% | SGD 0.061 |
With the rights issuance in September 2024, CICT have given an additional distribution of SGD0.0216 per share for the existing holders. This is so that moving forward, the distribution in the first quarter of 2025 will cover the period taking into consideration the enlarged unitholder base. Excluding this distribution, the dividend paid out for the calendar year 2024 from operations amounts to SGD0.1084 per share.
With a closing share price of SGD2.14 on 6 September 2024, this translates to a dividend yield of 5.07%. For my benchmark, a general reasonable yield would be around 5.75%. CICT’s dividend yield is below my benchmark and is Unfavorable.
Website: Reasonable Dividend Yield 2024Q3 – 5.75%
Take note that the current market narrative is for interest rates to decrease in September 2024. This may mean that the current dividend yield is Favorable. However, assessment should be made when the Federal Reserve officially cuts the interest rate.
Interest Rate Sensitivity
The Federal Reserve on 23 August 2024 has signaled that they are ready to cut interest rates, confident that inflation is easing to normal levels and wary of any more slowing in the job market. This was after increasing the interest rates to a range between 5.25% and 5.50% on 26 July 2023. Take note however that there were no specific timeline or forecasts, though market expectations are that the cut will happen in September 2024.
Website: Fed Chair Powell: ‘The time has come’ for interest rate cuts
In the event that the interest rate increase further, CICT may be subjected to changes in their cost of debt in the near future. The debt profile of CICT is as below:
| 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 |
I have performed the 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% |
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.
Tenant profile
CICT has a well-diversified tenant profile with the top 10 tenants contributing to 19.2% 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 | +2.5% | Favorable |
| Occupancy | 96.8% | Favorable |
| Gearing Ratio | 39.8% | Neutral |
| Interest Coverage | 3.0x | Favorable |
| Debt Maturity Profile | 3.5 years | Favorable |
| Price to Book Ratio | 1.00 | Favorable |
| Overall | Favorable |
Overall, the metrics remain Favorable to invest in CICT. With interest rate cuts potentially around the corner, CICT may see further improvements to DPU and interest coverage if their borrowings are renewed at lower terms. CICT have remained relatively stable this quarter which is something that may give investors assurance as we look towards any new interest rate announcements over the next few months.
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): 2024 First Quarter Business Update
