CapitaLand Integrated Commercial Trust (CICT) is in the enviable position of reporting a 2.5% y-o-y growth in distributions per unit (DPU) to 5.43 cents in 1HFY2024 for the six months to end-June. CICT is only the third REIT and property trust to report DPU growth this year. Mapletree Industrial Trust ME8U recorded a 1.2% y-o-y growth for its 1QFY2025 DPU, for the three months to end-June. CapitaLand India Trust CY6U , a property trust under the Business Trust Act,, reported an 8% y-o-y rise in DPU for 1HFY2024 to 3.64 cents.
Tony Tan, CEO of CICT’s manager says the resilient DPU was due to NPI growth based on rental growth, and lower property costs including utility costs. CQ @ Clarke Quay reopened in April. Additionally, Tan says the manager stabilised financing cost at 3.5% unchanged q-o-q.
“At the property level, we secured higher NPI. We stabilised financing cost at 3.5% similar to 1Q2024 and with consensus view of interest rates easing, that could result in a positive outcome. We did a $300 million 3.75% bond issue bond issue to replace debt coming due in 3Q2024 and 4Q2024. We maintained a high retention rate and had rental reversions of +9.3% for SIngapore retail, and +15% for Singapore office,” Tan said during the results briefing.
Additionally, Tan says he hopes to lower the leverage ratio over time from driving asset performance, improving asset values and selective capital recycling opportunities as and when they arrive.We will to our best to manage costs. Most of the debt expiring has been refinanced,” he adds. Around 80% of CICT’s refinancing for 2024 has been refinanced or is in advanced stages of documentation.
The risk for CICT is that analysts appear to be encouraging the manager to divest its Singapore properties. During the results briefing, they were asking about acquisition opportunities.
Few properties in Singapore are likely to be DPU-accretive on the acquisition front given REITs’ cost of capital and cost of debt. On the other hand, going overseas has not been particularly encouraging in terms of results for S-REITs.
Additionally, CICT has a call option to acquire 55% of CapitaSpring it doesn’t own within five years from the date of its temporary occupation permit in 2021. Will CICT divest of its current 45% stake in CapitaSpring or acquire the 55% stake it doesn’t own? When faced with a similar question in 2016 over CapitaGreen, CICT acquired the 60% of CapitaGreen it didn’t own.
When pressed by analysts, Tan says “we will engage the potential investment market. The guiding principle for deploying capital has to be something that makes sense to us.”
Redevelopment and/ or an extensive AEI are other ways that CICT has to improve its NPI. Tan says redevelopment takes time to get approvals from various government agencies.
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Elsewhere, Two of CICT’s properties are undergoing major asset enhancement initiatives. Galileo’s AEI, to upgrade the freehold building and add new, green features for its tenant the European Central Bank, will be completed in 2H2025. The committed occupancy of Gallileo is 96.7%, higher than the 93% with the previous main tenant, Commerzbank.
IMM is undergoing AEI with Phase 1 and 2 of level 1 AEI in progress and on track to meet target ROI of 8%. So far, the committed occupancy for Phase 1 and 2 is 98.7% with reopening in 4Q2024.
In the meantime, Tan says CQ @ Clarke Quay is a work-in-progress. Visitors to CQ tend to be “transient” visiting the riverside, for Instagrammable videos and photos, Tan indicates.
“CQ is a holistic precinct. The mico-market is anchored by a product {Canninghill Piers] coming onstream in 2026,” Tan says. Once the development is ready, it will comprise residential units, a hotel and serviced residences which will provide a “base” or “catchment population” for CQ.
In the meantime, Tan says volatility of the market remains a challenge. “We are trying to deal with headwinds and ensure we are able to drive revenue growth and manage costs. That keeps us on our toes and we can’t slip.”
JP Morgan continues to like CICT. “CICT’s DPU growth is the fastest among the larg-cap REITs which largely reported declines with exception of Mapletree Industrial Trust at +1.2% y-o-y DPU growth. The results were in line with our/street estimates with 1H2024 DPU making up 50% of our/consensus FY2024 estimates,” JP Morgan says. The outlook remains positive with 1H2024 retail and office rental reversions (average to average) of +9.3% and +15.0%, respectively, it adds.
