The REIT made its debut as CapitaLand Mall Trust (where it invests in retail malls in Singapore) back when it was listed in July 2002. It was the first REIT listed on the Singapore Exchange. However, it was renamed as CapitaLand Integrated Commercial Trust following its merger with another CapitaLand REIT in CapitaLand Commercial Trust (which invests in office properties in Singapore and Germany).

Currently, the REIT is the largest in Singapore by market capitalisation, where it invests in retail, office, as well as integrated development properties. As at 31 December 2023, its portfolio comprises 21 properties in Singapore, 2 properties in Frankfurt, Germany, and 3 properties in Sydney, Australia with a total property value of S$24.5 billion.

Earlier this afternoon (29 April 2024), CapitaLand Integrated Commercial Trust (SGX:C38U), or CICT for short, conducted its AGM for FY2023, which I attended virtually (on that note, my biggest appreciation to the REIT for making this option available for unitholders, along with making avail the option for online attendees to ask questions and submit votes for the resolutions tabled).

For the benefit of those who aren’t able to attend, in this post, you will find my summary of the CEO, Mr Tony Tan’s presentation, the management responses to questions raised by fellow AGM attendees, as well as results of the 4 resolutions put to vote during the meeting.

Let’s begin:

Presentation by CapitaLand Integrated Commercial Trust’s CEO, Mr Tony Tan

  • CICT demonstrated resilience since the Covid-19 pandemic where, between 2021-2023, it achieved a return of 9.1%, which outperformed that of the FTSE ST Real Estate Index (of 4.1%) and FTSE ST REIT Index (of 1.2%).
  • Gross revenue and net property income were up by 8.2% and 7.0% on a year-on-year (y-o-y) basis to S$1,559.9m and S$1,115.9m respectively, attributed by full-year acquisitions completed in 2022, higher gross rental income from existing properties (including from Raffles City Singapore, where asset enhancement initiative works were completed), partially offset by higher operating expenses.
  • Distributable income to unitholders was up by 9.8% y-o-y to S$715.7m, with distribution per unit up by 1.6% to 10.75 cents.
  • Committed occupancy level was at 97.3%, with portfolio WALE at 3.4 years. Positive rental reversion was recorded for its retail portfolio (at +8.5%; while tenant sales have surpassed pre-Covid levels, but shopper traffic remains below, and the management will continue to monitor the situation) and for its office portfolio (at +9.0% for Singapore, largely due to the renewal of large anchor tenants; for its overseas office properties, the REIT will be looking at ramping up occupancy rates and at the same time, retaining existing tenants), with the tenant retention rate of its Singapore portfolio at 84.1%.
  • Occupancy rates for all property types improved compared to last year (with retail occupancy up from 98.3% to 98.5%, office occupancy up from 94.4% to 96.7%, and integrated development up from 97.1% to 98.5%), the REIT is actively looking to find tenants for the available spaces.
  • In terms of lease expiries, they are well spread out to avoid concentration in one single year. For most of the office lease expiries in 2024, they were mitigated by the signing of a 10-year lease agreement with European Central Bank at Gallileo.
  • To manage rising operating expenses, CICT have progressively increased services charges for its Singapore portfolio since 2022, locked in energy contracts at 9-10% lower rates compared to 2023 till end-2024, fixing 78% of total borrowings at fixed interest rates, announced distribution reinvestment plan for 2H FY2023 distribution to maintain capital for the REIT’s asset enhancement initiative plans, and at the same time, implemented the new Singapore property Management Agreement for commission fee structure to better align Singapore property managers and CICT’s interest.
  • Aggregate leverage is at 39.9%, with interest coverage at a healthy level of 3.1x. 41% of borrowings are also on sustainability-linked/green loans and green bond issuance. Looking ahead, the interest rate environment is expected to remain volatile, and CICT will maintain a vigorous approach to capital management.
  • Portfolio valuation was up by 1.2% to S$24.5 billion, attributed to a 2.0% in the valuation of its Singapore properties, offset by the decline in valuation of its overseas properties (for its Australian properties, it was due to the expansion in capitalisation rates, while for its Germany properties, it was due to terminal capitalisation rates; however, for the latter, following the completion of work in Gallileo, and tenant [in the European Central Bank] moving into the property, its valuation is likely to see an improvement).
  • Works at CQ @ Clarke Quay has been completed, with fresh concepts from day to night, and it was officially opened last Friday (26 April). Most of the tenants have started operations from mid-2024.
  • 3 more asset enhancement works are currently ongoing, including IMM (to strengthen its outlet mall position; works expected to complete in 3Q 2025), Gallileo in Germany (to elevate the property’s relevance, functionality, and operational efficiency; expected downtime of at least 18 months), and 101 Miller Street in Australia (to elevate office environment in North Sydney by activating common spaces and creating social hubs to support tenants returning to office) – all of these works are expected to further increase the valuation of the properties, as well as provide opportunities for future revenue growth after their completion.
  • ESG Updates: Implemented Solar PV system at IMM Building, and the REIT is looking at extending this initiative to other properties; This year, the REIT have also brought the ‘Project Green’ initiative to a few CapitaLand Malls in Singapore, including Plaza Singapore and Bugis+. Looking forward, the REIT is committed to growing sustainably.

Responses to Questions Raised during the AGM

  • On the asset enhancement initiative at Gallileo, which totalled EUR180 million and involved 18 months of downtime, a unitholder asked if it would be transferred to its tenant, the European Central Bank. The CEO clarified that these expenses would be accounted for as capital expenditures. Regarding rentals, the CEO shared that the new 10-year contract secured a double-digit rental increase compared to the previous tenant.
  • A unitholder raised concerns about whether the REIT can recoup the expenses of the current asset enhancement initiatives at IMM, given that the mall’s land tenure has only 25 years left. The CEO assured that the costs would be recovered. Regarding the renewal of the land lease, the CEO mentioned that a thorough evaluation of the property is necessary before approaching the authorities (the JTC) to discuss an extension. He noted that discussions on this matter would likely start in another 5-10 years.
  • Addressing concerns about falling property values in Germany and Australia, the CEO noted that property valuers consider various factors, such as the interest rate climate and economic challenges within the country, along with rental rates for the leases in the property. Although some of these elements are beyond CICT’s influence, the company can control others. These include ensuring properties are well-maintained, investing strategically, securing leases, and engaging with the community. The REIT will continue to concentrate on these manageable aspects.
  • When asked by a unitholder about the reasons behind the rise in property valuation of its Singapore properties, the CEO explained that it stemmed from continued high confidence among businesses and investors in the country. This confidence was supported by several factors, including a low unemployment rate, effectively controlled inflation, and strong operational metrics of the properties, such as positive rental reversion.
  • A unitholder sought clarification on the “Code of Conduct for Leasing of Retail Premises in Singapore” in its annual report. In response, the CEO said that this code agreed upon by major landlords during the peak of the Covid-19 pandemic when retailers had to close due to the ‘circuit breaker’ measures enforced by the Singapore government. This agreement prevents landlords from increasing the gross rent for tenants during the existing contracts, which last about 2-3 years, to assist them in managing the challenges posed by the pandemic. He also noted that this arrangement is nearing its conclusion.
  • Regarding the challenges that may arise from Link REIT’s recent acquisition of several malls in Singapore from Mercatus Co-operative Limited, the CEO noted that the competitive landscape remains unchanged. This is because Link REIT simply takes over from Mercatus, which has left the retail property sector. Additionally, there are differences in their organisational structures.
  • The same unitholder asked about the effect of hybrid working on the demand for the REIT’s office spaces. The CEO responded that demand has remained stable. This steadiness is due to the limited availability of office spaces in the CBD, where the REIT’s properties are located, along with rising demand from multinational companies seeking to enlarge their business footprint in Singapore for strategic purposes.
  • A unitholder requested an update on the occupancy and staff return rates of CICT’s office properties overseas. The CEO reported that Gallileo in Germany is unoccupied due to ongoing improvements, with full occupancy expected post-2025 following a 10-year lease agreement with the European Central Bank. The Main Airport Center has a 92% occupancy with staff return rates of 50-60%. In Australia, 66 Goulburn Street in Sydney’s CBD is over 90% occupied, with a 60-70% return rate. Both 101-103 Miller Street and 100 Arthur Street in North Sydney are over 90% and 77% occupied respectively, with return rates ranging from 50-60% and about 50%. The CEO suggested that the completion of the new Metroline could increase staff returns at the North Sydney properties due to reduced travel times.
  • Another unitholder highlighted about CICT’s apparent absence in the North and North East regions of Singapore. In response, the CEO clarified that the REIT maintains a balanced presence across different areas of the island. He highlighted their properties including IMM and Westgate in the West, Bedok Mall and Tampines Mall in the East, Junction 8 in the central region, and Lot One Shopper Mall in Choa Chu Kang. He further distinguished CICT from other Singaporean REITs by noting its diverse portfolio, which includes retail properties in both suburban and downtown areas as well as office properties.
  • When asked about the significant increase in utility expenses for FY2023 compared to the previous year, the CEO explained that it was primarily due to a tariff increase of more than 100%. Additionally, he noted that several retail contracts were still governed by the “Code of Conduct for Leasing of Retail Premises in Singapore.” He mentioned that many of these contracts are nearing their expiration, which will allow the increased tariffs to be passed on to the tenants. Furthermore, he pointed out that in FY2024, the rates are expected to be 9-10% lower than the year before. Looking ahead, the REIT plans to focus on controlling usage and improving the operational efficiency of its equipment.

Results of Resolutions Put to Vote during the AGM

  • Resolution 1, which is to receive and adopt the Trustee’s Report, the Manager’s Statement, the Audited Financial Statements of CICT for the financial year ended 31 December 2023 and the Auditors’ Report thereon, was passed with 99.33% of the votes for, and 0.67% of the votes against.
  • Resolution 2, which is to appoint Deloitte & Touche LLP as Auditors of CICT to hold office until the conclusion of the next annual general meeting of CICT in place of the retiring Auditors, KPMG LLP, and to authorise the Manager to fix their renumeration, was passed with 98.38% of the votes for, and 1.62% of the votes against.
  • Resolution 3, which is to authorise the Manager to issue Units and to make or grant convertible instruments, was passed with 92.53% of the votes for, and 7.47% of the votes against.
  • Resolution 4, which was to approve the renewal of the Unit Buy-Back Mandate, was passed with 99.94% of the votes for, and 0.06% of the votes against.

Closing Thoughts

CICT is one of the few REITs that have managed to improve its distribution payouts in FY2023 – attributed to full-year contributions from acquisitions made in FY2022. Looking forward, with CQ @ Clarke Quay completed, and occupancy rates at a high level of 80+% (to my understanding), its contribution will positively contribute towards its distribution payout for FY2024 ahead.

However, with interest rates still at a high level at the time of writing (and there’s a possibility that we might not even see any interest rate cuts this year), the high borrowing cost may continue to impact its DPU growth – that said, I am of the opinion that if its distribution payout can be maintained at around the same level as FY2023, or a small improvement, it will be considered as a very good result.

In terms of how the AGM was conducted, the management was also patient in addressing all of the questions raised by fellow AGM attendees (both online as well as online) – with the entire meeting lasted slightly more than an hour.

As a unitholder, I remain optimistic of the management growing the REIT in the years ahead, and with that, I have come to the end of my summary of CapitaLand Integrated Commercial Trust’s AGM for FY2023. As always, I sincerely hope you have found the contents presented in this post useful.

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

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