Introduction
CapitaLand Integrated Commercial Trust (CICT), the largest S-REIT by market capitalisation and assets in Singapore, continues to demonstrate robust performance despite a challenging market environment. This comprehensive analysis delves into CICT’s financial health, competitive position, and future prospects, alongside a detailed comparison with its peers.
CapitaLand Integrated Commercial Trust (CICT)
CICT’s 3Q24 net property income (NPI) increased by 5.4% year-on-year (YoY) to SGD289.8 million, driven by a 1.7% YoY increase in gross revenue to SGD397.9 million. This growth translated into an expansion in its NPI margin by 2.6 percentage points (ppt) YoY to 72.8%. The trust benefited from healthy rental reversions of 9.2% for its retail portfolio and 11.7% for its office portfolio, with an overall committed occupancy of 96.4%.
However, a slight sequential dip in the aggregate leverage ratio to 39.4% from 39.8% was noted, with 76% of debt hedged. The average term to maturity for its debt remains among the longest in the S-REIT sector, at 3.8 years. The average cost of debt inched up by 10 basis points (bps) quarter-on-quarter (QoQ) to 3.6%, with expectations for both FY24 and FY25 cost of debt to hover around the high-3% level.
CICT’s portfolio includes 21 properties in Singapore, two properties in Frankfurt, Germany, and three properties in Sydney, Australia, with a total property value of SGD24.5 billion as of 31 December 2023. The trust is managed by CapitaLand Integrated Commercial Trust Management Limited, a wholly owned subsidiary of CapitaLand Investment Limited.
Investment Summary
CICT’s investment thesis is anchored on its diverse exposure to suburban and downtown retail markets, as well as the core CBD office sector in Singapore. The trust also has smaller exposures to Germany and Australia. Positive leasing momentum in its retail operations and solid rental reversions in its Singapore office portfolio have been key drivers of its performance, although a moderation in rental reversions is expected in FY25.
For 9M24, CICT’s gross revenue and NPI grew by 2.0% and 5.4% YoY to SGD1,189.8 million and SGD872.1 million, respectively. Despite a slight dip in tenant sales on a per square foot (psf) basis, overall tenant sales on an absolute SGD basis increased, particularly in downtown malls. Shopper traffic grew by 3.7% YoY.
ESG Initiatives
CICT’s Environmental, Social, and Governance (ESG) rating was upgraded in July 2022. The trust scores well in the “Opportunities in Green Building” category and aligns with CapitaLand’s commitment to achieving net zero by 2050. CICT focuses on building portfolio resilience, resource efficiency, enabling future-adaptive communities, and accelerating sustainability innovation and collaboration. The trust has robust governance practices, including board-level oversight of ethics standards, anti-corruption policies, and an independent majority board.
Potential Catalysts and Investment Risks
Potential catalysts for CICT include the divestment of assets at prices significantly above valuation, distribution per unit (DPU) accretive acquisitions, and better-than-expected momentum in footfall and tenant sales for its malls.
Investment risks encompass a slowdown in macroeconomic conditions that may dampen consumer and business sentiment, a rising interest rate environment that could increase borrowing costs, and a slower-than-expected recovery in portfolio rental reversions.
Financial Summary
Income Statement
| In Millions of SGD |
FY2019 |
FY2020 |
FY2021 |
FY2022 |
FY2023 |
| Revenue |
786.7 |
745.2 |
1,305.1 |
1,441.7 |
1,559.9 |
| Cost of Revenue |
281.7 |
286.6 |
441.6 |
493.8 |
542.4 |
| Gross Profit |
505.0 |
458.7 |
863.4 |
947.9 |
1,017.6 |
| Operating Income |
490.9 |
887.9 |
873.6 |
952.6 |
1,065.3 |
| Interest Expense |
116.1 |
130.4 |
182.0 |
232.3 |
345.6 |
| Pretax Income |
696.9 |
349.7 |
1,102.3 |
730.0 |
879.3 |
| Net Income |
696.9 |
349.8 |
1,083.1 |
723.4 |
862.6 |
Key Ratios
| Key Ratios |
FY2019 |
FY2020 |
FY2021 |
FY2022 |
FY2023 |
| Operating Margin |
47.64% |
101.64% |
52.99% |
49.96% |
46.14% |
| Pretax Margin |
88.58% |
46.92% |
84.46% |
50.63% |
56.37% |
| Net Income Margin |
88.58% |
46.94% |
82.99% |
50.17% |
55.30% |
Comparative Analysis
Frasers Centrepoint Trust (FCRT)
FCRT exhibits similar strengths in the retail sector, with a FY24E price-to-earnings (P/E) ratio of 19.5 and a FY25E P/E ratio of 18.5. Its price-to-book (P/B) ratio remains steady at 1.0, and it boasts a dividend yield of 5.5% for FY24E and 5.7% for FY25E. The trust’s return on equity (ROE) is projected at 4.9% for FY24E and 5.2% for FY25E.
Mapletree Pan Asia Commercial Trust (MACT)
MACT stands out with a lower P/E ratio of 16.4 for FY24E and 15.4 for FY25E. Despite a low P/B ratio of 0.3, its dividend yield is higher at 6.3% for FY24E and 6.6% for FY25E. The trust’s ROE is 4.4% for FY24E and 5.0% for FY25E, reflecting a stable performance in the commercial real estate market.
Starhill Global Real Estate Investment Trust (STHL)
STHL has a P/E ratio of 12.2 for FY24E and 12.4 for FY25E, with a P/B ratio of 0.7. The trust offers a substantial dividend yield of 7.5% for FY24E and 7.6% for FY25E. Its ROE is projected at 5.7% for FY24E and 5.8% for FY25E, indicating a strong return on investment for shareholders.
Paragon REIT (SPHR)
SPHR presents a balanced investment option with a P/E ratio of 18.6 for FY24E and 18.9 for FY25E. The P/B ratio remains at 1.0, and the trust offers a dividend yield of 4.8% for FY24E and 5.2% for FY25E. SPHR’s ROE is consistent at 5.1% for both FY24E and FY25E.
Conclusion
CapitaLand Integrated Commercial Trust continues to showcase resilience and robust performance amidst a dynamic market landscape. Its strategic positioning in key markets, coupled with strong financial metrics and ESG commitments, make it a compelling investment option. Investors should, however, remain vigilant of potential market risks and moderations in rental reversions as highlighted in this analysis.
