In January 2022, the Singapore Retailers Association (SRA) called on the Singapore government to implement measures targeted at rejuvenating domestic retail spending.
Among its recommendations was a call to distribute up to S$1,000 in shopping vouchers to all citizens.
While the suggestion may sound outlandish, there are deeper undertones to this message.
The retail sector was hit hard by waves of tightened restrictions in 2021, with SRA director Rose Tong describing the retail sector as being in “dire straits” as recently as October.
Can the beleaguered sector make a recovery in 2022?
We try to answer that question by looking at the full-year financial results of CapitaLand Integrated Commercial Trust (SGX: C38U) for 2021 (FY2021).
Here are four key points investors should take note of.
Strong financial performance
CICT’s financial figures for FY2021 look impressive.
In the second half of 2021 (2H2021), CICT posted gross revenue of S$659.4 million, 54.5% higher year on year.
Net property income (NPI) also surged, growing by 61.6% year on year to reach S$478.9 million.
However, the bumper performance was largely attributed to the contribution from CapitaLand Commercial Trust’s (CCT) assets and the full contribution from Raffles City Singapore after the merger between CCT and CapitaLand Mall Trust (CMT) to form CICT in late 2020.
On the back of these results, CICT declared a distribution per unit (DPU) of S$0.0522 for 2H2021, inclusive of an advance distribution of S$0.0485 pursuant to a private placement in December 2021.
In the same period a year ago, the REIT paid a DPU of S$0.0573.
For FY2021, CICT declared a DPU of S$0.104.
At a unit price of S$1.94, units of CICT offer a trailing 12-month distribution yield of 5.4%.
Challenging portfolio conditions
CICT ended the year with a portfolio occupancy rate of 93.9%, dipping from 96.4% a year ago as both retail and office properties faced challenging conditions.
On the retail front, tenant retention rate was 82.3%, with incoming rental rates falling by 3.2% versus outgoing rates.
Shopper traffic continued to remain depressed.
Footfall at CICT’s malls languished at 61.2% of 2019 levels, although tenant sales per square foot fared better at 87.8% of 2019’s level.
CICT’s office properties also had a difficult year.
Office occupancy fell from 94.9% in 2020 to 91.5% at the close of 2021, with a sluggish tenant retention rate of 69.3%.
Retail outlook
2022 will be a pivotal year for CICT’s retail segment.
32% of retail rents by gross rental income (GRI) will expire during the year.
It remains to be seen how well CICT can attract tenants to fill up occupancies and arrest the slide in rental rates, especially with vaccinated travel lanes (VTLs) set to resume later this year.
The resumption of VTL would likely cause an outflow of Singaporean shoppers, especially if dine-in and social distancing restrictions are still in place.
There have also been talks of a potential hike in the goods and services tax, which could dampen domestic spending.
But to its credit, CICT has been working on multiple initiatives to attract shoppers.
A new 100-metre underground pedestrian link has opened at Funan, connecting the lifestyle mall directly to City Hall MRT station.
This long-awaited underground link provides a completely sheltered path which was not available before.
The REIT has also partnered with various companies to hold pop-up exhibitions at its malls, as well as refreshed its tenant mix with new retail offerings such as Shake Shack (NYSE: SHAK), Garmin (NYSE: GRMN) and SuperGurl.
Office outlook
Remote working arrangements have boomed in light of the pandemic.
In an unprecedented step, Singapore’s Public Service Division (PSD) has announced that it will formalize work norms for hybrid modes of working, acknowledging that telecommuting is now a permanent part of work for many offices.
But contrary to conventional wisdom, overall demand for office space could continue to grow.
According to CBRE Research, Grade A CBD office rents continued to rise quarter on quarter in 4Q 2021, with demand being supported by sectors such as technology and non-bank financial services.
The rising competitiveness of Singapore as a financial hub relative to Hong Kong has also seen firms relocate headcount to the Lion City to position themselves for growth in South-east Asia.
This trend bodes well for CICT as the REIT continues to proactively manage its leases as it focuses on asset recycling.
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Disclosure: Herman Ng owns shares of CapitaLand Integrated Commercial Trust.
