The REIT sector has taken it on the chin over the last two years.
The combination of surging inflation and high interest rates has caused many REITs to report lower distributable income along with a decline in distribution per unit (DPU).
Along the way, these REITs have also seen their unit prices fall in tandem with their DPU.
CapitaLand Integrated Commercial Trust (SGX: C38U), or CICT, is a notable exception.
The retail and commercial REIT saw its unit price hit its 52-week high of S$2.16 recently and is up around 3.5% year-to-date.
Can CICT continue its impressive run and will investors witness a new high for its unit price?
Continued growth in DPU
CICT pulled off an impressive feat by announcing consistent DPU growth.
2023 saw the REIT’s DPU inch up 1.6% year on year from S$0.1058 to S$0.1075 as both its revenue and net property income (NPI) enjoyed year-on-year increases of 8.2% and 7%, respectively.
Its track record has carried on into the first half of 2024 (1H 2024).
For its recent earnings report, the retail and commercial REIT saw its revenue rise 2.2% year on year to S$792 million.
NPI jumped 5.4% year on year to S$582.4 million, driven by lower utilities expenses and savings from property management reimbursements stemming from a new property management agreement.
As a result, DPU continued to climb, rising by 2.5% year on year from S$0.053 in 1H 2023 to S$0.0543 in 1H 2024.
The consistent increase in DPU may explain why CICT’s unit price has remained resilient in the face of macroeconomic uncertainty and interest rate challenges.
Robust operating metrics signal strong demand
Apart from CICT’s financial performance, the REIT’s operating metrics also demonstrate sturdy demand for its portfolio of 26 properties.
CICT’s portfolio occupancy has remained consistently high, increasing from 95.8% back in 2022 to 97.3% in 2023.
For 1H 2024, this trend has continued with the REIT’s committed portfolio occupancy coming in at 96.8%, down just 0.2 percentage points quarter on quarter.
Another clear indication of strong demand for its properties comes from observing the rental reversion history.
For 2023, CICT’s retail and commercial divisions saw positive rental reversions of 8.5% and 9%, respectively.
1H 2024 saw even stronger reversions with the retail segment reporting a positive 9.3% rental reversion while the commercial division logged a positive rental reversion of 15%.
These numbers are a testament to CICT’s quality portfolio with properties that continue to witness high leasing demand despite tough conditions.
CICT’s retail portfolio also consistently sported healthy metrics for tenant sales and shopper traffic.
For 2023, tenant sales per square foot (psf) improved by 1.8% year on year while shopper traffic increased by 8.6% year on year.
For 1H 2024, CICT’s retail portfolio squeezed out a small 0.1% year-on-year increase in tenant retail sales psf, aided by the influx of Chinese tourists at the beginning of the year but offset by higher outbound travel as the year wore on.
Shopper traffic, however, enjoyed a 3.2% year-on-year increase.
AEIs to improve assets
CICT’s manager is also working diligently on asset enhancement initiatives (AEIs) to improve the portfolio.
The REIT conducted an AEI on CQ @ Clarke Quay last year and officially completed the AEI back in April this year and unveiled a new “day and night” concept that will create a vibrant lifestyle hub and attract more visitors.
Another AEI is ongoing at the IMM Building with Phases 1 and 2 in progress and on track to meet the REIT’s target return on investment of around 8%.
Healthy leasing interest was seen with committed occupancy of 98.7% for the two phases, with new tenants expected to shift in from the fourth quarter of 2024 (4Q 2024).
Over in Frankfurt, CICT’s Gallileo building is also undergoing an AEI with a target phased handover to the European Central Bank from 2H 2025.
Support from a strong sponsor
Let’s not forget that CICT is anchored by a strong sponsor in CapitaLand Investment Limited (SGX: 9CI), or CLI.
CLI is a real estate investment manager with S$134 billion of property assets under management and S$100 billion of funds under management as of 31 March 2024.
The presence of a strong sponsor means that CICT can borrow at more attractive interest rates.
CLI also has a pipeline of potential assets that can be injected into the REIT to help it grow.
Get Smart: Good days ahead
CICT looks well-positioned to continue doing well.
The REIT’s properties enjoy strong demand and reported healthy operating metrics for 1H 2024.
Interest rates could also be heading down soon and provide relief for borrowing costs.
The US Federal Reserve could be poised to cut interest rates as inflation in the US has moderated below 3% in July, the first time it has done so since 2021.
With several AEIs in place, CICT should enjoy healthy organic rental growth.
With these catalysts in place, income investors should look forward to better days ahead.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
