The retail and commercial REIT is seeing better days ahead as Singapore reopens its borders.
The recent hike in interest rates by the US Federal Reserve has cast a chill over the REIT sector.
In its wake, many REITs have tumbled to a year-low as investors fret over higher borrowing costs.
CapitaLand Integrated Commercial Trust (SGX: C38U), or CICT, has been a notable exception.
The retail and commercial REIT, which owns 20 properties in Singapore, two in Frankfurt and two in Sydney, Australia, boasts a total property value of S$22.9 billion as of 31 March 2022.
CICT recently hit its 52-week high of S$2.36 before drifting down to S$2.21.
Income-seeking investors may be interested to know if this solid REIT, with CapitaLand Investment Limited (SGX: 9CI) as a sponsor, can continue to hit new highs.
We delve deeper into CICT to try to get the answer.
Retail resurgence
To determine if the REIT can continue to do well, we looked at each major component of the REIT, starting from its retail portfolio.
As of 31 March 2022, retail occupancy stood healthy at 96.6% with a high retention rate of 91% based on the net lettable area (NLA).
Tenant sales inched up 0.6% year on year, despite shopper traffic declining by 5.3% year on year — a clear indication that people are spending more each time they visit the malls.
Retail is poised to enjoy a boost with the launch of Vaccinated Travel Framework (VTF), allowing fully vaccinated tourists to enter the country without serving a stay-home notice or applying for entry approvals.
Already, passenger numbers for Singapore Airlines Limited’s (SGX: C6L) flights have surged nearly three-fold from 544,600 in February to 1.45 million in April.
The VTF should increase these numbers further, heralding a recovery for both the aviation and tourism sectors.
CICT’s properties such as Raffles City, Clarke Quay, Plaza Singapura and Funan should enjoy higher footfall as tourist numbers rise.
The REIT manager is also active in curating new retail experiences for CICT’s malls by introducing new food and beverage offerings and brands such as Bossini X in Bugis Junction and a LEGO certified store at Funan.
Back to the office
CICT’s office portfolio is also doing well, with committed occupancy clocking in at 91.4%.
The retention rate was an impressive 95.5% while rental reversion was positive at 9.3% for 1Q2022.
Since late April, the government has relaxed COVID-19 restrictions by allowing 100% of office workers to return to their offices.
As more employees head back to their offices, demand for office space should remain robust even with some companies implementing hybrid work practices.
CB Richard Ellis expects Singapore office rents to continue heading up in 2022, growing by 6.9% year on year, as supply remains tight.
Active in acquisitions
Aside from organic growth from asset enhancement initiatives and positive rental reversion, CICT has also historically been active in acquisitions.
The REIT recently completed its acquisition of a 70% interest in 79 Robinson Road, a new grade A office building with a weighted average lease expiry of 5.8 years.
Renamed “CapitaSky”, this property has an attractive net property income (NPI) yield of 4% and has a committed occupancy of 92.9% as of 31 March 2022.
Last December, CICT carried out two acquisitions.
The first was for two properties – 66 Goulburn Street and 100 Arthur Street in Sydney, that were purchased for around S$330.7 million at an NPI yield of 5.2%.
The second was for the acquisition of a 50% interest in 101 Miller Street and Greenwood Plaza, also in Sydney, for S$409.3 million at an NPI yield of 4.9%.
DPU is set to rise further
These three acquisitions are all yield-accretive and are expected to bump up CICT’s DPU further in 2022.
CICT reported a DPU of S$0.104 for FY2021, up from S$0.0869 a year earlier.
The two Australian acquisitions are slated to add S$0.004 to the REIT’s DPU, while its CapitaSky acquisition will add a further S$0.003.
Together, these acquisitions will boost DPU by S$0.007, bringing CICT’s estimated FY2022 DPU to S$0.111.
Get Smart: A combination of strong traits
CICT has many attractive attributes.
The REIT is anchored by a reputable sponsor and enjoys a high overall portfolio committed occupancy of 93.6%.
The wrinkle in this picture is its aggregate leverage (after its acquisitions), which is expected to increase to 41%.
That said, it has a low cost of debt of just 2.3%.
I am a firm believer that a REIT’s unit price should trend up along with its DPU.
And CICT’s DPU looks set to rise with the many catalysts pointed out above.
Assuming a DPU of S$0.111 for FY2022, investors can enjoy a distribution yield of around 5%.