On 1 August 2023, CapitaLand Integrated Commercial Trust (“CICT”) have announced their 2023 half year result. In general, their financial position remains relatively unchanged. With the improvement in DPU, it has shifted the metric of CICT towards favorable for this period.
The key thing to note at the date of this article is that interest rates are expected to continue increasing for the next few months. The upcoming October 2023 Singapore Savings Bond is being issued with a 10-year average interest rate of 3.16%. So while the fundamentals and dividend yield is reasonable, share price may still decrease as investors require a higher rate of return. Especially as CICT’s dividend yield is also currently in the lower band of my expected dividend yield range.
Website: Financial Statements And Related Announcement::Half Yearly Results
Photo source: https://fifthperson.com/cmt-cct-merger-pros-cons/
Background
CICT is the first and largest real estate investment trust (“REIT”) listed on Singapore Exchange Securities Trading Limited (“SGX ST”). It made its debut on SGX ST as CapitaLand Mall Trust (“CMT”) in July 2002 and was renamed CICT in November 2020 following the merger with CapitaLand Commercial Trust (“CCT”).
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, a wholly owned subsidiary of CapitaLand Investment Limited (“CLI”), a leading global real estate investment manager with a strong Asia foothold.
Key Metrics
Distribution Per Unit (“DPU”)
| Metrics | Current | Previous |
|---|---|---|
| Distribution Per Unit | +1.5% | No Info |
For the first half of 2023, it is noted that DPU have increased by 1.5% to SGD0.053 per share from SGD0.052 per share for the same period in the prior year. This metric is Favorable, and we can see that the DPU is supported by an improvement in total return of the REIT.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 96.7% | 96.2% |
Occupancy rate as at 30 June 2023 stands at 96.7%. This is Favorable as it is above my expected healthy occupancy rate of 95%.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 40.4% | 40.9% |
Gearing ratio stands at 40.4% as at 30 June 2023. This to me is Unfavorable, as it is substantially high and close to the MAS limit of 50% when compared to other REITs.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 3.3x | 3.4x |
The interest coverage stands at 3.3 times as at 30 June 2023. The metric is Unfavorable as the interest coverage is lower than my preference of 5.0 times and seems to be worsening. This is a concern as interest rates continue to rise as the world looks to tackle inflation.
The Federal Reserve on 25 August 2023 have announced that they may need to raise interest rates further to cool the still-too-high inflation, despite having increased the interest rates to a range between 5.00% and 5.25% on 26 July 2023, the highest level in 22 years.
Website: Fed’s Powell: higher rates may be needed, will move ‘carefully’
As the interest rate may potentially increase further, CICT may be subjected to significant change in their cost of debt in the near future. In their presentation they have mentioned that 78% of their debt is also on fixed rates.
I have thus performed a sensitivity analysis using the information as at 30 June 2023:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $9,600,000 |
| Debt Not Hedged (%) | 22.0% |
| Debt at Floating Rate Exposed | $2,112,000 |
| Distributable Income FY2022 | $702,400 |
Interest rate sensitivity analysis as below:
| Change in Interest Rates | Decrease in Distributable Income (SGD’000) | Change as % of FY2022 Distribution |
|---|---|---|
| + 50 bps | -$10,560 | -1.5% |
| + 100 bps | -$21,120 | -3.0% |
| + 150 bps | -$31,680 | -4.5% |
| + 200 bps | -$42,240 | -6.0% |
| + 250 bps | -$52,800 | -7.5% |
| + 300 bps | -$63,360 | -9.0% |
Do note the above is my estimation which may be different from management’s estimation. Nonetheless, if the interest rates were to increase by the basis points above, CICT may experience a fall in DPU accordingly.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 4.3 years | 4.2 years |
Weighted average term to maturity of their debt stands at 4.3 years as at 30 June 2023. This is Favorable and it allows them sufficient time to refinance their debts as they fall due.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 0.90 | 0.93 |
The Price to Book (“P/B”) ratio currently stands at 0.90. This is computed using the closing share price of SGD1.90 on 12 September 2023 and the net asset value per share of SGD2.12 as at 30 June 2023. The metric is Favorable as investors will not be paying a significant premium for a REIT with a strong sponsor.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2023 | 5.61% | SGD 0.107 |
| 2022 | 2.94% | SGD 0.056 |
| 2021 | 6.19% | SGD 0.118 |
| 2020 | 3.21% | SGD 0.061 |
At 12 September 2023, therefore with a closing share price of SGD1.90 and dividend payout of SGD0.107 for the full calendar year 2023, this translates to a dividend yield of 5.61%. For my benchmark, a general reasonable range would be around an average of 5.5% to 6.5% in the current environment. CICT’s dividend yield is slightly below my benchmark.
Website: Reasonable Dividend Yield 2023Q3
It is worth noting that interest for long-term safe assets is on an uptrend for the last few months. The latest upcoming October 2023 Singapore Savings Bond is being issued with a 10-year average interest rate of 3.16%. There is a chance for interest rates to continue to increase moving forward, and the required dividend yield of investor may be higher than current. This may cause further share price depreciation for the dividend yield to compensate for the risk appetite of investors.
Website: SBOCT23 GX23100T Bond Details
The dividend yield is Neutral.
Other metrics
Tenant profile
CICT has a well diversified tenant profile with the top 10 tenants contributing to 20.0% of their total gross rent with no single tenant accounting for more than 5.4% during the period, providing income diversity to the portfolio.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | +1.5% | Favorable |
| Occupancy | 96.7% | Favorable |
| Gearing Ratio | 40.4% | Unfavorable |
| Interest Coverage | 3.3x | Unfavorable |
| Debt Maturity Profile | 4.3 years | Favorable |
| Price to Book Ratio | 0.90 | Favorable |
| Overall | | Favorable |
Overall, the metrics indicate that it is favorable to invest in CICT. CICT have remained relatively consistent this quarter, which is a good sign of stability. Although their gearing ratio and interest coverage is unfavorable, this is a similar scenario for the other REITs as well, where interest rate is currently at a high rate.
However, with interest rates expected to continue to increase, CICT may see their share price decrease as investors move to safe assets.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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Website: CapitaLand Integrated Commercial Trust (SGX: C38U): 2023 First Quarter Business Update
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