CapitaLand Integrated Commercial Trust: 4Q23 Results Analysis: Strong Singapore Inc
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- FY23 DPU +1.6% y-o-y to 10.75 Scts, in line with our estimates. 4Q23 revenue and NPI +0.7% q-o-q and 5% q-o-q respectively, held up by office.
- Key Positives: i) estimated 4Q23 reversions remained high for both retail and office, ii) more than half of office leases expiring in FY24 is in advance negotiations; iii) retail occupancy cost at 16% with room to grow; iv) Clarke Quay AEI completed with 50% new tenants
- Key factors to watch: i) Gallileo AEI for 18 months post tenant vacating; ii) potential asset recycling
- Maintain BUY; TP of S$2.30.
What Happened
FY2023 performance was in line with our estimates, gearing trend down marginally with improved valuation mainly from Singapore assets; more than half of the office leases expiring in FY24 are currently in advance negotiation. CICT’s FY23 DPU +1.6% y-o-y to 10.75 Scts, in line with our estimates. This was led by revenue and NPI growth of 8% y-o-y and 7% y-o-y respectively. 4Q23 revenue and NPI grew 4% y-o-y (0.7% q-o-q) and 8% y-o-y (5% q-o-q) respectively. 4Q23 portfolio NPI was held up mainly by office (+26% y-o-y; 19% q-o-q) while retail was stable (+1.6% y-o-y; flat q-o-q) and integrated development (-5% y-o-y; -5% q-o-q). Gearing improved to 39.9% vs 40.8% in 3Q23 mainly due to a slight increase in portfolio valuation (+2% y-o-y) while average cost of debt inched up marginally q-o-q to 3.4% vs 3.3% in 3Q23). ICR remained stable at 3.1x. Portfolio valuation was mainly held up by Singapore assets (+2% y-o-y; retail +2.9%; office +0.8%) despite stable cap rates. Australia assets -10% y-o-y with 37bps to 87bps cap rates expansion while Germain office valuation -10% with terminal yield expanded 1.45% to 1.9%. Key highlights from operations: i) portfolio occupancy stable q-o-q at 97.3%; ii) estimated reversions were higher for both retail (11%) and office (9%) in 4Q23 (retail reversions were mainly from suburban portfolio (+12%); iii) tenant sales +2% y-o-y mainly led by downtown mall (+3% y-o-y); iii) occupancy cost was at 16.3% with room to grow; iv) CICT is in advanced negotiation for more than half of office leases expiring in FY24 (4.5% of 8.3% leases expiring) and 12% of retail leases (1.5% of 12.3% leases expiring); v) AEI at Clarke Quay was completed with target launch in 2Q24 with a refreshed look and 50% of new tenants; previously announced committed occupancy (including advanced negotiations) is >85%; vi) average office signing rents inched higher to S$10.49psf vs S$10.45psf in 3Q23.
Our View
Singapore assets remain strong with room to grow, partially offset by the departure of tenant and AEI plans at Gallileo. CICT delivered strong performance during a challenging FY23, mainly driven by its Singapore office portfolio. Post the completion of Clarke Quay AEI, CICT embarks on new AEI at IMM, North Sydney office assets and Gallileo post the departure of its tenant at the end of Jan24. We expect Singapore assets will likely remain stable with upside from retail and office, riding on the strong positive reversions over the past year. However, overall growth could moderate with the AEI plans at Gallileo. Recent news have reported potential asset recycling by CICT which could bode well for investors to pare down gearing levels, in our view. We maintain our BUY rating and TP of S$2.30. With more than 90% of its portfolio comprises Singapore assets, we believe CICT is a close proxy of the resilient Singapore economy.
| Summary of results | 4Q2023 | 3Q2023 | % q-o-q | 4Q2022 | % y-o-y | FY2023 | FY2022 | % y-o-y |
| Revenue (S$m) | 393.9 | 391.3 | 0.7% | 380.0 | 4% | 1,559.9 | 1,441.7 | 8% |
| NPI (S$m) | 288.6 | 275.0 | 4.9% | 268.4 | 8% | 1,115.9 | 1,043.3 | 7% |
| Income avail for distribution (S$m) | n/a | n/a | n/a | n/a | n/a | 728.5 | 713.0 | 2% |
| Income distributed (S$m) | n/a | n/a | n/a | n/a | n/a | 715.7 | 702.4 | 2% |
| DPU (Scts) | n/a | n/a | n/a | n/a | n/a | 10.75 | 10.58 | 1.6% |
| Gearing (%) | 39.9% | 40.8% | -0.9 ppt | 40.4% | -0.5 ppt | 39.9% | 40.4% | -0.5 ppt |
| Average cost of debt (%) | 3.4% | 3.3% | 0.1 ppt | 2.7% | 0.7 ppt | 3.4% | 2.7% | 0.7 ppt |
| WALE (yrs) | 3.4 | 3.5 | -0.1 | 3.7 | -0.3 | 3.4 | 3.7 | -0.3 |
| ICR (x) | 3.1 | 3.1 | 0 | 3.7 | -0.6 | 3.1 | 3.7 | -0.6 |
| Hedging ratio | 78% | 78% | 0 ppt | 81% | -3 ppt | 78% | 81% | -3 ppt |
Source: Company, DBS Bank Ltd
| Key Operational Data | 4Q2023 | 3Q2023 | % q-o-q | 4Q2022 | % y-o-y |
| Portfolio occupancies | 97.3% | 97.3% | 0 ppt | 95.8% | 1.5 ppt |
| Retail | 98.5% | 99.0% | -0.5 ppt | 98.3% | 0.2 ppt |
| Office | 96.7% | 96.4% | 0.3 ppt | 94.4% | 2.3 ppt |
| Integrated Developments | 98.5% | 98.0% | 0.5 ppt | 97.1% | 1.4 ppt |
| Rental reversions (%) | |||||
| Retail (cumulative) | 8.5% | 7.8% | 0.7 ppt | -1.5% | 10 ppt |
| - suburban | 8.3% | 7.4% | 0.9 ppt | 0.7% | 7.6 ppt |
| - downtown | 8.8% | 8.4% | 0.4 ppt | -3.5% | 12.3 ppt |
| Office (cumulative) | 9.0% | 8.8% | 0.2 ppt | 7.6% | 1.4 ppt |
| Portfolio WALE (years, GRI) | 3.4 | 3.5 | -0.1 | 3.7 | -0.3 |
| Retail | 2.0 | 2.1 | -0.1 | 2.2 | -0.2 |
| Office | 3.4 | 3.5 | -0.1 | 3.8 | -0.4 |
| Integrated development | 4.9 | 5.0 | -0.1 | 5.2 | -0.3 |
| Shopper Traffic (y-o-y, cumulative) | 8.6% | 12.9% | -4.3 ppt | 25.0% | -16.4 ppt |
| Tenant Sales (y-o-y, cumulative)) | 1.8% | 4.0% | -2.2 ppt | 22.5% | -20.7 ppt |
| Av office rent (S$psf pm) - SG | 10.49 | 10.45 | 0.4% | 10.53 | 0% |
Source: Company, DBS Bank Ltd
ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate[1] does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests[2] in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
- DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSVUSA, or their subsidiaries and/or other affiliates have a proprietary position in CapitaLand Integrated Commercial Trust recommended in this report as of 31 Dec 2023.
Compensation for investment banking services:
- DBS Bank Ltd, DBS HK, DBSVS their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from CapitaLand Integrated Commercial Trust as of 31 Dec 2023.
3. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates of DBSVUSA, within the next 3 months, will receive or intend to seek compensation for investment banking services from CapitaLand Integrated Commercial Trust as of 31 Dec 2023.
- DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for CapitaLand Integrated Commercial Trust in the past 12 months, as of 31 Dec 2023
- DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
Disclosure of previous investment recommendation produced:
- DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed on page 1 of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.
[1] An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
[2] Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
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The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.
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- CapitaLand Integrated Commercial Trust 3Q24 results: Portfolio optimisation a key focus05 Nov 2024
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- CapitaLand Integrated Commercial Trust: 3Q24 results: Portfolio optimisation a key focus08 Nov 2024
- CapitaLand Integrated Commercial Trust 3Q24 results: Portfolio optimisation a key focus05 Nov 2024