There are a total of 5 REITs under CapitaLand Investment Limited’s (SGX:9CI) umbrella, and they are: CapitaLand Ascendas REIT (SGX:A17U), CapitaLand Ascott Trust (SGX:HMN), CapitaLand China Trust (SGX:AU8U), CapitaLand India Trust (SGX:CY6U), CapitaLand Integrated Commercial Trust (SGX:C38U) – out of which, 3 are in my long-term investment portfolio (in CapitaLand Ascendas REIT, CapitaLand India Trust, and CapitaLand Integrated Commercial Trust).

Early this morning (26 October), CapitaLand Integrated Commercial Trust, or CICT for short, was the first of the 3 CapitaLand REITs I have investments in to release its business update for the 3rd quarter of the financial year ended 30 September – the other 2 CapitaLand REITs in my portfolio in CapitaLand India Trust and CapitaLand Ascendas REIT will be releasing its business updates later this evening, and tomorrow evening respectively.

For those who are not familiar with the REIT, it is the first and largest REIT listed on the Singapore Exchange. It invests in real estate properties used for retail and office purposes, and at the time of writing, it is invested in 21 properties in Singapore, 2 in Frankfurt, Germany, as well as 3 in Sydney, Australia, with a total assets under management of S$24.2 billion.

As the REIT have switched to half-yearly of its full financial results, for the current quarter under review, it only provided a snippet of it, which we will be look at in this post, together with its portfolio occupancy and debt profile.

Let’s begin…

Key Financial Figures (Q3 FY2022 vs. Q3 FY2023, and 9M FY2022 vs. 9M FY2023)

In this section, let us take a look at some of the key financial figures released by the REIT for the 3rd quarter (i.e., Q3 FY2022 vs. Q3 FY2023), and also for the first 9 months of the year (i.e., 9M FY2022 vs. 9M FY2023):

Q3 FY2022 vs. Q3 FY2023:

Q3 FY2022Q3 FY2023% Variance
Gross Revenue
(S$’mil)
$374.1m$391.3m+4.6%
Property Operating
Expenses (S$’mil)
$100.8m$116.3m+15.4%
Net Property
Income (S$’mil)
$273.3m$275.0m+0.6%

My Observations: Pretty stable results reported by the retail and office REIT for the quarter – where its gross revenue saw a 4.6% improvement due to higher actual occupancy (at portfolio level, it was at 97.3%, up from 95.1% in Q3 FY2022), and shopper traffic.

However, due to a double-digit percentage jump in property operating expenses (by 15.4% to S$116.3m), its net property income only inched up by 0.6% to S$275.0m.

9M FY2022 vs. 9M FY2023:

9M FY20229M FY2023% Variance
Gross Revenue
(S$’mil)
$1,061.7m$1,166.1m+9.8%
Property Operating
Expenses (S$’mil)
$286.8m$338.7m+18.1%
Net Property
Income (S$’mil)
$774.9m$827.3m+6.8%

My Observations: For the first 9-months of FY2023, its financial results are at decent levels – where its gross revenue improved by 9.8%, due to increased actual occupancy and shopper traffic.

However, due to its property operating expenses increasing at a higher percentage (compared to the percentage increase its gross revenue), its net property income saw a slower percentage growth at 6.8%.

Portfolio Occupancy Profile (Q2 FY2023 vs. Q3 FY2023)

Moving on, let us have a look at CICT’s portfolio occupancy profile, where I will be comparing the statistics reported for the current quarter under review (i.e., Q3 FY2023 ended 30 September) against that reported in the previous quarter (i.e., Q2 FY2023 ended 30 June) to find out whether or not it has continued to remain at a resilient level (one of the things I like about the REIT’s portfolio occupancy is that it has been maintained at a high of above 90% in the previous quarters):

Q2 FY2023Q3 FY2023
Portfolio Occupancy (%)
(Retail)
98.7%99.0%
Portfolio WALE (by GRI – years)
(Retail)
2.2 years2.1 years
Portfolio Occupancy (%)
(Office)
95.4%96.4%
Portfolio WALE (by GRI – years)
(Office)
3.6 years3.5 years
Portfolio Occupancy (%)
(Integrated Development)
97.8%98.0%
Portfolio WALE (by GRI – years)
(Integrated Development)
5.3 years5.0 years

My Observations: On the whole, CICT’s occupancy for its retail, office, and integrated development properties are very strong – where all 3 of them recorded further improvements in their occupancy rates.

Year-to-date rental reversions for new and/or renewed leases for its retail properties were at +7.8%, and +8.8% for its office properties – which is encouraging to note.

Top 10 tenants contribute about 19.5% towards the REIT’s gross revenue, with the top tenant (in RC Hotels (Pte) Ltd) contributing 5.1%.

Finally, in terms of lease expiries, for the remaining quarter of FY2023, only 0.8% of retail leases and 1.5% of office leases are due for renewal. For the next few financial years (from FY2024 to FY2026), approximately 14.5% of retail leases and 6.5% of office leases are due for renewal each year – in my opinion it is well-staggered out.

Debt Profile (Q2 FY2023 vs. Q3 FY2023)

Debt profile of a REIT becomes all the more important amid the current high interest rate environment we are in right now – where we need to make sure that its aggregate leverage remains at a comfortable level (preferably below 40%), and at the same time, it has a high percentage of borrowings hedged at fixed rates (preferably at 80% or more) to reduce the impact of high borrowing cost have on distribution payouts to unitholders.

In the table below, you will find a comparison of CapitaLand Integrated Commercial Trust’s debt profile for the current quarter (i.e., Q3 FY2023) against that reported in the previous quarter (i.e., Q2 FY2023) to find out whether it has continued to remain healthy:

Q2 FY2023Q3 FY2023
Aggregate Leverage
(%)
40.4%40.8%
Interest Coverage
Ratio (times)
3.3x3.1x
Average Term to
Debt Maturity (years)
4.3 years4.1 years
Average Cost of
Debt (%)
3.2%3.3%
% of Borrowings Hedged
to Fixed Rates (%)
78%78%

My Observations: No doubt its aggregate leverage inched up slightly (by 0.4 percentage points to 40.8%), but there’s still ample headroom to the regulatory level of 50.0%.

In terms of debt maturity, only 1% (or S$130m) of borrowings will be due for refinancing in the final quarter of FY2023. Between FY2024 and FY2029, approximately 15% of borrowings will be due for refinancing each year – which I consider to be well-staggered.

However, there’s one thing I’m casting a watchful eye on – its interest coverage ratio, which have gradually declined every quarter since Q1 FY2023 (at 4.2x), to just 3.1x at Q3 FY2024.

Closing Thoughts

As far as its financial performances (both for the 3rd quarter, as well as for the first 9 months of the financial year) are stable, contributed by a high occupancy, and improvement in shopper traffic (which went up by 12.9% year-on-year).

Portfolio occupancy in my opinion is very strong, where its retail, office, and integrated development properties have occupancy rates of more than 96.0%, with lease expiries well-staggered out.

On its debt profile, its aggregate leverage (of 40.4%) is still a good distance away from the regulatory limit of 50.0%. However, one thing I have a little concern over is its weakening interest coverage ratio – which have gradually declined every single quarter from 4.2x in Q1 FY2022 to a low of just 3.1x in Q3 FY2023 (do take note that should a REIT’s interest coverage fall under 2.5x, the regulatory limit for its aggregate leverage will be adjusted downwards from 50.0% to 45.0%.)

Finally, in case you are wondering, the REIT did not declare any distributions for the current period under review, as it declares a distribution on a half-yearly basis (once when it releases its results for the 1st half of the financial year, and once when it releases its results for the 2nd half of the financial year).

With that, I have come to the end of the post on CapitaLand Integrated Commercial Trust’s 3rd quarter business update. As always, I hope you have found the information presented above useful. Please note that everything in this post are merely for educational purposes only, and they do not represent any buy or sell calls for the REIT’s units. You are strongly advised to do your own due diligence before you make any investment decisions.

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Disclaimer: At the time of writing, I am a unitholder of CapitaLand Integrated Commercial Trust.

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