On 26 October 2023, CapitaLand Integrated Commercial Trust (“CICT”) have announced their 2023 third quarter business update, and they have remained relatively stable. However, although there is no DPU this quarter, worth noting that when compared to 2022Q3, revenue has increased by 4.6% but net property income has only increased by 0.6%. With the falling interest coverage as well, likely we will not see any substantial increase in DPU paid in 2024Q1 based on the operations of the REIT.
Website: General Announcement::3Q 2023 Business Updates
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 | No Info | +1.5% |
Based on the announcement on 26 October 2023, DPU was not included in the business update for the third quarter of 2023. There is a mention however that the net property income has increased by 6.8% year on year.
For 2023Q2, this metric is Favorable as there was an increase in DPU.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 97.3% | 96.7% |
Occupancy rate as at 30 September 2023 stands at 97.3%. This is Favorable as it is above my expected healthy occupancy rate of 95%.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 40.8% | 40.4% |
Gearing ratio stands at 40.8% as at 30 September 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 | 3.1x | 3.3x |
The interest coverage stands at 3.1 times as at 30 September 2023. The metric is Unfavorable as the interest coverage is lower than my preference of 5.0 times. This is a concern as interest rates continue to rise as the world looks to tackle inflation.
The Federal Reserve on 7 November 2023 have indicated that interest rates need to stay high for a longer period of time and higher interest rates may be needed. This was after having increased the interest rates to a range between 5.25% and 5.50% on 26 July 2023, the highest level in 22 years.
Website: US Fed official expects further rate hike needed
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 September 2023:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $9,700,000 |
| Debt Not Hedged (%) | 22.0% |
| Debt at Floating Rate Exposed | $2,134,000 |
| 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 | -$10,670 | -1.5% |
| + 100 bps | -$21,340 | -3.0% |
| + 150 bps | -$32,010 | -4.6% |
| + 200 bps | -$42,680 | -6.1% |
| + 250 bps | -$53,350 | -7.6% |
| + 300 bps | -$64,020 | -9.1% |
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 | 4.1 years | 4.3 years |
Weighted average term to maturity of their debt stands at 4.1 years as at 30 September 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 | 0.90 |
Based on the announcement on 26 October 2023, net asset value (“NAV”) was not included in the business update for the third quarter of 2023.
The Price to Book (“P/B”) ratio currently stands at 0.90. This is computed using the closing share price of SGD1.90 on 8 December 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 8 December 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 6.0% to 7.0% in the current environment. CICT’s dividend yield is below my benchmark.
Website: Reasonable Dividend Yield 2023Q4
If using dividend yield of 6.0% as a benchmark, based on the dividend of SGD0.107 there is potential for CICT to see its share price drop by another 6.1% to SGD1.78. Investors will thus need to be mentally prepared that the share price might further fall.
| Yield | Share Price | Downside |
|---|---|---|
| Current (5.61%) | 1.90 | – |
| 6.00% | 1.78 | -6.1% |
| 7.00% | 1.53 | -19.5% |
| 8.00% | 1.34 | -29.6% |
| 9.00% | 1.19 | -37.4% |
This is important to note as interest rate for long-term safe assets is on a downtrend towards the end of 2023. The latest upcoming January 2024 Singapore Savings Bond is set to be issued with a 10-year average interest rate of 3.07%. There is a chance for interest rates to continue to decrease moving forward, and the required dividend yield of investor may be lower than current.
Website: SBJAN24 GX24010F 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 19.5% of their total gross rent with no single tenant accounting for more than 5.1% during the period, providing income diversity to the portfolio.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | No Info | Favorable |
| Occupancy | 97.3% | Favorable |
| Gearing Ratio | 40.8% | Unfavorable |
| Interest Coverage | 3.1x | Unfavorable |
| Debt Maturity Profile | 4.1 years | Favorable |
| Price to Book Ratio | 0.90 | Favorable |
| Overall | | Favorable |
Overall, the metrics indicate that it is favorable to invest in CICT. Their gearing ratio and interest coverage are still in unfavorable territory, although the rest of their fundamentals remained stable and there are not much changes expected for the rest of 2023.
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 Half Year Result
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