Do you know? CapitaLand Integrated Commercial Trust (SGX:C38U) is the first and largest REIT listed on the Singapore Exchange with a market capitalisation of S$13.7 billion as at 31 December 2023.

The REIT was first listed as CapitaLand Mall Trust back in July 2002, where it was just a pure-play retail mall REIT, before its merger with CapitaLand Commercial Trust, which invests in office properties in Singapore and Germany. Subsequently, its name was changed to CapitaLand Integrated Commercial Trust, or CICT for short, in November 2020.

Currently, CapitaLand Integrated Commercial Trust’s portfolio comprises retail, office, and integrated development properties in Singapore (21), Germany (2), and Australia (3) with a total property value of S$24.5 billion. Singapore accounts for 93.7% of the REIT’s portfolio value, followed by Australia and Germany, which makes up 3.6% and 2.7% of its portfolio value respectively.

Following the conclusion of the financial year on 31 December 2023 (i.e., FY2023), the commercial REIT have published its annual report last Thursday (28 March 2024) morning, and in this post, you will find key points to take note, as well as details of its upcoming annual general meeting.

Let’s begin:

Summary of CapitaLand Integrated Commercial Trust’s Annual Report

Financial Highlights:

• Gross revenue, and net property income were up by 8.2% and 7.0% year-on-year (y-o-y) to S$1.6 billion (FY2022: S$1.4 billion) and S$1.11 billion (FY2022: S$1.0 billion) respectively, supported by resilient operational performance from existing assets (which saw higher rental and occupancy rates), full year contributions from acquisitions in Australia, and 70.0% interest in CapitaSky completed in 1H FY2022.
• Distributable income to unitholders was also up by 1.9% y-o-y to S$715.7 million (FY2022: S$702.4 million), which translated into a distribution per unit (DPU) of 10.75 cents (FY2022: 10.58 cents), an increase of 1.6% y-o-y. A distribution reinvestment plan was announced for its 2H FY2023 distribution, providing its unitholders with the option to receive their distribution in units or a combination of units and cash in lieu of the cash amount of distribution.
• Aggregate portfolio property value grew 1.2% y-o-y to S$24.5 billion, largely driven by better operating performance in Singapore, partially offset by a drop in overseas portfolio values, impacted by an expansion in capitalisation rate in Australia and an increase in terminal capitalisation rates in Germany.

Managing Rising Operating Expenses (in its Singapore Portfolio):

• To address rising operating costs such as utilities and manpower, it has increased service charges progressively from October 2022 for its Singapore office portfolio.
• This is on top of a change in leasing commission fee structure and cost reimbursement to a performance-based structure, which forged a tighter alignment between the Singapore property managers and CICT’s interest, and lead to better revenue and cost alignment over time.
• The REIT has also managed to secure an energy contract with rates lower compared to the average rate for FY2023 – as a result, most of its properties in Singapore will enjoy these lower rates till end-2024.

Capital Management:

• Aggregate leverage ratio was 39.9%, with an average cost of debt at 3.4%. 78% of its total borrowings are in fixed interest rates to mitigate interest rate movements.
• Debt maturity profile was well-spread over various tenures, with average term to maturity of 3.9 years.
• As at 31 December 2023, about 10.6% (or S$999.6 million) of borrowings will mature in 2024, and the REIT has sufficient bank facilities and internal resources to repay the borrowings.
• In FY2023, the REIT secured S$2.2 billion in sustainability-linked and green loan facilities, as well as green bond issuances – bringing it to a total of S$4.2 billion as at 31 December 2023, and accounting for 41.8% of its total borrowings (including its proportionate share of borrowings in joint ventures).
• CICT has a credit rating of ‘A3’ by Moody’s Investors Service, and an ‘A-‘ credit rating from S&P Global Ratings.

Portfolio Occupancy:

• Committed portfolio occupancy improved by 1.5 percentage points (pp) to 97.3% from 95.8% a year ago – with improvement extended across all asset types, where committed occupancies for retail, office, and integrated development portfolios increasing to 98.5% (FY2022: 98.3%), 96.7% (FY2022: 94.4%), and 98.5% (FY2022: 97.1%) respectively.
• Retail segment: Shopper traffic climbed 8.6%, with tenant sales per sq ft per month registering a 1.8% improvement, and surprising pre-Covid levels. Tenant retention rate was also strong at 82.8%, and a rental reversion of +8.5% was achieved.
• Office segment: Achieved rental reversion of +9.0%, and strong tenant retention rate of 86.5% for its Singapore office portfolio. Healthy leasing demand are seen from industries such as financial services, legal, manufacturing, and distribution. Office spaces in Australia have also seen positive take-up from the REIT’s proactive leasing efforts and initiatives to provide fitted-out workspace to target different market segments for occupiers.
• AEI (Asset Enhancement Initiative) Updates:
  • CQ @ Clarke Quay (Singapore) – commenced in phrases since Q3 FY2022, currently, store fit-outs are progressing rapidly and scheduled to be operational by mid-2024, with the management expecting a meaningful income contribution from the property from 2H FY2024;
  • IMM Building (Singapore) – 4-phase enhancement works will commence in Q1 FY2024 to anchor its position as a regional outlet destination, increasing total outlet concepts to 110 post-AEI; pre-commitment level of around 70% for the 2 phases of upgrading has been secured as at 31 December 2023; the management aims to generate a return on investment of about 8% from the AEI;
  • 101 Miller Street (Australia) – upgrading works to transform the lobby into a best-on-class multifunctional communal space managed by a co-working and executive space operator – Work Club; works scheduled to be completed by Q2 FY2024;
  • 100 Arthur Street (Australia) – partnered with The Work Project to manage concierge services and flexible workspace solution at the lobby and Level 10 of the property;
  • Galileo (Germany) – 3-phase AEI started in February 2024 (following the anchor tenant’s lease expiry in end-January 2024) to elevate the relevance, functionality and operational efficiency with a target to achieve a minimum green rating of LEED Gold certification; a downtime of at last 18 months is expected for the AEI; advanced negotiations are in progress with a prospective tenant from the financial services sector for most of the buildings net lettable area.
• The REIT’s management will actively review asset plans to optimise its portfolio and future-proof its properties through AEIs that incorporate green features.

Sustainability Journey:

• CICT is aligned with its Sponsor, CapitaLand Investments Limited (or CLI for short) in its commitment to Net Zero by 2050, with plans to achieve its targets in-line with the 2030 SMP (Sustainability Master Plan).
• With the successful implementation of a solar photovoltaic system at IMM Building, the REIT is exploring to extend this initiative to other retail and office properties.
• In Australia, the REIT has procured green energy for 66 Goulburn Street and 100 Arthur Street.

Looking Ahead:

• CICT will remain a proxy to Singapore commercial real estate.
• Ongoing efforts to actively create value will pave the way for the REIT’s future growth, given the potential for further AEIs and/or redevelopments within its diversified portfolio. At the same time, the management will explore acquisitions and portfolio reconstitution opportunities that will enhance the quality of its portfolio.
• Management expects positive rental reversion trend for its office and retail portfolios to continue in FY2024.
• On capital management, the management will actively evaluate appropriate funding structures for accretive investments, which can be a combination of recycling of divestment proceeds, working with a capital partners, debt and/or equity fund raining.
• Given the right opportunities, the REIT aims to lower its aggregate leverage for greater financial flexibility.

Details of CapitaLand Integrated Commercial Trust’s AGM

When? Monday, 29 April 2024
Time? 2.30pm
Venue? The Star Gallery, Level 3, The Star Performing Arts Centre, 1 Vista Exchange Green, Singapore 138617

Unitholders have the option to attend the meeting in-person (no need to pre-register if your units are held in your CDP account), or virtually (you need to pre-register here by Saturday, 27 April 2024).

I have registered to attend the meeting virtually and have submitted the following question to seek the management’s clarification:

(i) I understand from Page 25 of the annual report that CICT aims to lower its aggregate leverage for greater financial flexibility, may I know what is the target aggregate leverage the REIT is looking to achieve?

[Update on 24 April 2024: CapitaLand Integrated Commercial Trust have published their responses to substantial and relevant questions submitted by unitholders. The response to my question can be found in page 7 of the PDF document here.]

For the benefit of those who aren’t able to attend the meeting, I will be posting a summary of it in due course.

Closing Thoughts

CapitaLand Integrated Commercial Trust is one of the few REITs, apart from the hospitality REITs, which saw an increase in its top- and bottom-lines, as well as its distribution payout to unitholders, despite the high interest rate environment (which hampered many REITs’ growth, and at the same time, higher borrowing costs affecting the REITs’ distribution payout to unitholders).

Prospects for the commercial REIT ahead remains bright – with tailwinds coming from interest rate cuts (the US Federal Reserve have signalled 3 interest rate cuts in 2024, and more in the coming 2 years ahead), which may lead to more yield-accretive acquisitions by the REIT.

Also, with a lower interest rate, the lower borrowing cost could potentially result in an increase in distribution payouts to unitholders. Another tailwind for the REIT in the coming years will be contributions from properties following the completion of AEI works (one of them being CQ @ Clarke Quay, which the REIT’s management expects contributions to come in from the 2nd half of FY2024).

With that, I have come to the end of my post today on my summary of CICT’s latest annual report for FY2023. I certainly hope you have found the contents presented above useful, and at the same time, do take note that all the opinions expressed above are purely mine for educational purposes only. You are strongly recommended to do your own diligence before making any investment decisions.

Related Documents

• Annual Report
• Sustainability Report
• Letter to Unitholders (dated 28 March 2024) Relating to the Proposed Change of Auditors
• Letter to Unitholders (dated 28 March 2024) Relating to the Proposed Renewal of the Unit Buy-Back Mandate
• Notice of AGM
• Proxy Form

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

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