CapitaLand Integrated Commercial Trust (“CICT”) is the first and largest real estate investment trust (“REIT”) listed on Singapore Exchange Securities Trading Limited (“SGX-ST”) with a market capitalization of S$14.0 billion as at 31 December 2020. It debuted on SGX-ST as CapitaLand Mall Trust in July 2002 and was renamed CICT in November 2020 following the merger with CapitaLand Commercial Trust.
CICT owns and invests in quality income-producing assets primarily used for commercial (including retail and/or office) purpose, located predominantly in Singapore.
CICT is managed by CapitaLand Integrated Commercial Trust Management Limited, which is a wholly owned subsidiary of Singapore-listed CapitaLand Limited, one of Asia’s largest diversified real estate groups.
Before venturing further, it was worth noting that 2020 is an exceptional year with Covid-19 disrupting businesses around the world and countries imposed restrictions in an attempt to curb the virus. Singapore is heavily dependent on tourism, and the economic outlook for Singapore as a whole took a turn for the worse. With the assets of CICT mainly situated in Singapore, naturally CICT will not be spared as well.
Key Metrics
Distribution Per Unit (“DPU”)
Based on the announcement on 21 January 2021, it was noted that Distributable Income and DPU have decreased by 16.4% and 27.4% year on year respectively. This was mainly due to uncertainty and challenges brought about by the rapidly evolving COVID 19 pandemic and rental waivers disbursed to the tenants.
Covid-19 was a one-off event. Nonetheless the decrease in DPU is seen as unfavorable. There is uncertainty as Covid-19 is constantly evolving with new variants and countries around the world are considering new restrictions. This indicator may be further affected moving forward into FY2021.
Occupancy
Occupancy rate as at 31 December 2020 stands at 98% for the retail assets and 94.9% for their office assets. This is, favorable as it is above my expected healthy occupancy rate of 95% and CICT have been able to fully utilize their assets.
Gearing ratio
Gearing ratio stands at 40.6% as at 31 December 2020. This to me is considered quite unfavorable although still healthy. While it is still a distance away from the MAS raised limit of 50%, it suggests a possible rights issue should they decide to take an aggressive stance to expand in the near future.
Interest coverage
The interest coverage for the trailing 12 months stands at 3.8 times. This is unfavorable in my opinion. However as the general interest rates are hinted to continue to stay low for an extended period of time, I am expecting this indicator to turn favorable in the long run as CICT refinance their debt.
Debt maturity profile
Weighted average term to maturity of their debt stands at 4.1 years as at 31 December 2020. This is favorable and it allows them sufficient time to refinance their debts as they fall due.
Price to Book Ratio
The Price to Book (“P/B”) ratio currently stands at 1.055. This is computed using the closing share price of SGD2.11 on 12 March 2021 and the net asset value per share of SGG2.00 as at 31 December 2020.
The P/B ratio is favorable for a well managed asset.
Other metrics
Manager
It was worth noting that the Manager had taken management fees in the form of new shares instead of cash payout. While this translates to a dilution of the existing holders, it also demonstrates management’s confidence in the REIT. This is favorable in view of the long prospects of the REIT.
Tenant profile
CICT has a well diversified tenant profile with the top 10 tenants contributing to 21.1% of their total gross rent. This is favorable as CICT will not be too reliant on any single tenant for income.
Dividend yield
Dividend yield from previous payouts are not comparable moving forward due to the merger of the 2 trusts into CICT.
Nonetheless, total payout made by the stock quote “SGX: C38U” in the calendar year 2020 amounts to SGD0.1006, of which SGD0.0089 was a clean up distribution from the merger. Excluding the clean up distribution, with a dividend payout of SGD0.0917, this translates to a dividend yield of 4.35% based on the closing share price of SGD2.11 on 12 March 2021.
Taking into consideration the Covid-19 impact, the dividend yield is reasonable and is attractive for those looking to add a dividend counter. However investors will need to keep in mind the uncertainties moving forward into FY2021.
Key things to note
Covid-19
Despite the world’s best efforts, Covid-19 has lasted a year and there are no signs of significant slow down despite the race for vaccines. CICT assets are mainly situated in Singapore which is heavily dependent on tourism, and tourism levels till date are still heavily restricted.
As the relief provided by the government around the world starts to taper off, there is uncertainty on the going concern of businesses, including tenants that CICT serves. It is worth noting that CICT retail tenants, which contributes the largest portion of their revenue, have a short weighted average expiry by monthly gross rental income. Thus there is an issue if it may be renewed.
Summary
Given the current uncertainty in the market, I am still expecting some headwinds resulting in potential decline in share prices. Nonetheless, this is a good behemoth stock that is poised for recovery. In my opinion, the enlarged asset base post merger also allows CICT to have more bargaining power when it comes to negotiating new terms, both with their debt and tenants.
Thus I believe that the current share price of SGD2.11 have already priced in the weaker 2020 results and is Under Valued. However investors will need to keep in mind that recovery will not happen overnight and the environment may change as Covid-19 continues to change the landscape of Singapore. Share prices are likely to still remain volatile in the near future.
