Excerpts from OCBC Investment Research report
CapitaLand Integrated Commercial Trust (SGX: C38U)
- CapitaLand Integrated Commercial Trust 3Q24 net property income (NPI) increased 5.4% yearon-year (YoY) to SGD289.8m
- Healthy rental reversions of 9.2%/11.7% for retail/office portfolio and overall portfolio committed occupancy of 96.4%, or a quarter-on-quarter (QoQ) decline of 0.4 percentage points (ppt)
- Slight sequential dip in aggregate leverage ratio to 39.4%, with 76% of debt hedged.
Largest S-REIT by market capitalisation
CapitaLand Integrated Commercial Trust (CICT) is the largest S-REIT by market capitalisation and assets in Singapore. It has a strong sponsor in CapitaLand Investment Limited, and its scale has been significantly enlarged following the completion of the merger with CapitaLand Commercial Trust in Oct 2020.
CICT now offers investors diverse exposure to the suburban and downtown retail market and core CBD office sector in Singapore, coupled with smaller exposures to Germany and Australia.
We continue to see positive leasing momentum for CICT’s retail operations. For its Singapore office portfolio, CICT was able to achieve solid positive rental reversions in FY23.
This trend continued in 1H24, as market rental growth remained resilient, although office rental reversions are likely to moderate in FY25. From a credit perspective, CICT’s aggregate leverage ratio of 39.4% (as at 30 Sep 2024) remained above our coverage average but still at a manageable level.
76% of its borrowings has been hedged and its average term to maturity for its debt is still among the longest in the SREITs sector 3Q24.
3Q24 business update
CICT’s 3Q24 gross revenue inched up 1.7% YoY to SGD397.9m and NPI increased by a stronger pace of 5.4% YoY to SGD289.9m, thus translating to an expansion in its NPI margin by 2.6 ppt YoY to 72.8%.
No distribution per unit (DPU) data was given as this is provided on a semiannual basis. For 9M24, CICT’s gross revenue and NPI grew 2.0% and 5.4% YoY to SGD1,189.8m and SGD872.1m, respectively.
Still healthy rental reversions for both retail and office portfolios
CICT experienced healthy rental reversions for both retail and office portfolios but this is poised for a moderation in FY25; overall portfolio committed occupancy saw a slight sequential dip.
CICT’s 9M24 retail rental reversions came in at 9.2%, almost unchanged from the 9.3 % recorded in 1H24. Both suburban malls and downtown malls registered almost similar rental reversions of 9.0% and 9.4%, respectively.
On the other hand, 9M24 tenants’ sales on a per square foot (psf) basis declined marginally by 0.2% YoY, as the increase for its suburban malls (+1.4%) was offset by a decline at its downtown malls (-1.0%).
However, tenants’ sales on an absolute SGD basis increased for its downtown malls as there was a ramp up in operations at some of its assets such as Clarke Quay.
Shopper traffic on a retail portfolio level grew 3.7 % YoY, with both suburban and downtown malls contributing positively. For CICT’s Singapore office portfolio, rental reversions came in at 11.7% for 9M24, which was softer as compared to 1H24 (+15.0%), thus suggesting a material moderation in 3Q24.
Management maintained its guidance for rental reversions to come in around the high -single digit range for both its retail and office portfolios for FY24, but expects this to ease to low-single digit levels for both business segments in FY25.
Overall portfolio occupancy declined by 0.4 ppt QoQ to 96.4 %, due largely to weakness at its Main Airport Center asset in Frankfurt, Germany.
Slight sequential dip in aggregate leverage ratio to 39.4% from 39.8%, with 76% of debt hedged
CICT’s aggregate leverage dipped from 39.8% (as at 30 Jun 2024) to 39.4%. 76% of debt remains hedged, and average term to maturity is relatively long at 3.8 years.
Average cost of debt inched up 10bps QoQ to 3.6% and CICT expects both its FY24 and FY25 cost of debt to come in around the high -3% level.
For its upcoming year end asset valuation, management expects some cap rate expansion for its Australian properties, but overall portfolio valuation should remain fairly stable.
Valuation/Recommendation
We trim our FY24 and FY25 DPU forecasts by 0.6% and 1.8%, respectively, after factoring in higher finance costs and the acquisition of ION Orchard.
We also lower our risk-free rate assumption by 25bps to 2.50% and consequently our fair value estimate increases from SGD2.32 to SGD2.41
You can find the full report here and the company website here.
