The REIT sector has been through tough times in the past two years as interest rates surged and inflation remained stubbornly high.
Despite these headwinds, there have been several REITs that reported a year-on-year increase in their distribution per unit (DPU).
One of these REITs is CapitaLand Integrated Commercial Trust (SGX: C38U), or CICT.
The retail and commercial REIT owns a portfolio of 26 assets in Singapore (21), Germany (2), and Australia (3) with a total value of around S$24.5 billion as of 31 December 2023.
Investors may be curious to know if CICT can continue to grow its DPU and whether its unit price can head upwards.
A stellar set of financials
CICT reported a strong set of results despite the lingering headwinds.
The REIT’s gross revenue rose 8.2% year on year to S$1.6 billion while its net property income increased by 7% year on year to S$1.1 billion.
CICT’s DPU inched up 1.6% year on year to S$0.1075.
One indication of strong demand for CICT’s portfolio is its portfolio valuation.
Valuation edged up 1.2% year on year to S$24.5 billion, led by a 2% year-on-year increase in its Singapore property valuations.
Maintaining healthy operating metrics
Aside from financial results, CICT also sports very healthy portfolio operating metrics.
Portfolio committed occupancy stood high at 97.3%, inching up 1.5 percentage points from the previous year.
The portfolio also boasted a healthy weighted average lease expiry of 3.4 years.
Rent reversion also came in strongly positive, which is yet another indication of strong leasing demand for the REIT’s properties.
The retail division enjoyed a positive rent reversion of 8.5% while the office segment saw a positive rent reversion of 9%.
On the retail side, shopper traffic also rose 8.6% year on year for 2023 compared with 2022 while tenant sales inched up 1.8% year on year.
Moderate debt levels
Moving on to the REIT’s debt profile, aggregate leverage came in at close to 40% but CICT had 78% of its loans pegged to fixed rates.
This move will help to mitigate the rise in finance expenses moving forward.
CICT’s average cost of debt has crept up slightly from 3.3% as of 30 September 2023 to 3.4% as of the end of 2023.
However, the interest coverage ratio remained constant at 3.1 times in the last three months.
The retail and commercial REIT also has a well-spaced-out debt maturity profile with not more than 16% of its debt coming due in any financial year.
Around 18% of CICT’s loans also mature in 2030 and beyond, giving the REIT ample time to refinance its loans or look for cheaper debt options.
These healthy debt metrics imply that the REIT should be well-positioned to take on more debt to grow its portfolio and DPU.
Conducting AEIs
Apart from organic rental growth through positive rental reversions, CICT’s manager also undertakes periodic asset enhancement initiatives (AEIs) to further boost the REIT’s rental income.
CQ @ Clarke Quay is now in its final stage of AEI with a committed occupancy of 85%.
This revamp will help to spruce up the area and help turn Clarke Quay into a “day and night destination” to attract higher footfall.
Meanwhile, CICT is also embarking on AEIs for its properties in Singapore, Germany, and Australia.
In Singapore, the REIT will spend S$48 million to conduct an AEI for the IMM Building to sharpen the tenant mix to maximise rental yields and enhance shoppers’ experience.
The plan is to increase the total outlet stores to around 110 post-AEI with a target return on investment (ROI) of 8%.
The manager will improve overall efficiency by installing energy-efficient equipment throughout the mall.
This AEI will be conducted over four phases and is projected to be completed by the third quarter of 2025 (3Q 2025).
Over in Germany, CICT is upgrading its Gallileo property to become a modern, Grade A office building to achieve minimum LEED gold certification.
The total AEI cost will be around €175 million to €215 million, be conducted in three phases, and will be completed by late 2025.
Just last month, CICT announced that it had secured the European Central Bank (ECB) as its anchor tenant at Gallileo for a lease of 10 years.
The ECB will occupy close to 93% of the building’s net lettable area.
Elsewhere, CICT is also spending to spruce up 101 Miller Street and 100 Arthur Street, both in Australia, to create vibrant social hubs that will welcome tenants returning to their offices.
Get Smart: A promising future
CICT looks well-positioned for a promising future.
Not only does the REIT have a reputable sponsor in CapitaLand Investment Limited (SGX: 9CI), but it also seems clear that its portfolio of properties enjoys strong leasing demand.
Coupled with positive rental reversions and organic rental growth from the gradual completion of AEIs, CICT looks poised to continue its streak of DPU increases.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
