1H24 showed strong momentum; retail portfolio was resilient, office continued to deliver strong reversions.  CICT’s 1H24 revenues and net property income (NPI) came in at SGD791.9mn (+2.2% y/y, +0% h/h) and SGD582.4mn (+5.4% y/y, +3% h/h), respectively. The stronger growth in net property income was driven by stringent cost containment measures, savings from utilities, and reimbursement under the new property management agreement. The growth in net property income was recorded in retail (+6.3% y/y), office (+5% y/y), and integrated developments (4.6% y/y). Distributable income increased by a smaller +3.7% y/y due to slight y/y increase in interest costs, translating to a DPU of 5.43scts (+2.5% y/y), ahead of estimates.

Our view
(+) Resilient financial metrics. CICT has a well spread debt expiry profile of 3.5 years, with no concentration in refinancing risk. The REIT recently tapped the market with a 10-year SGD300mn green bond with an annual coupon of 3.75%. The MAS leverage ratio remained stable at 39.8% (+0.2 ppt q/q), with debt(+perpetual)/asset ratio steady at 38.3%. We note that these percentages remain conservative at <40%, reflecting the management’s conservative financial management style. Overall interest cost was 3.5% (flat q/q) but cost should remain close to this level. However, it could drop if the interest rate environment turns down, mainly from the REIT’s floating rate debt. As such, adjusted interest coverage ratio (ICR) remains stable and comfortable at 3.0x (flat q/q) and our calculated adjusted EBITDA ICR ratio (accounting for perpetual securities distributions) is at c.3.1x. 

(+) Robust operational metrics We remain positive on CICT’s robust organic growth prospects within the portfolio, backed by resilient occupancy rates of c.96.8% with positive rental reversions achieved across its retail (+9.3% in 1H24) and office (+15% in 1H24), providing an inbuilt growth profile for the REIT. CICT secured almost 1.1mn sq. ft. of leases across retail and office portfolios, achieving retention rates exceeding 80% as a result in 1H24. Looking ahead, management expects to see continued stability across its portfolio and achieve a mid- to high-single-digit reversionary growth for both retail and office properties in 2024.

(+) Retail strength seen within the portfolio. Within the retail portfolio, we noted strength in both the downtown (+9.5%) and suburban (+9.1%) reversionary growth metrics as retailers gain more confidence after the past few years recovering from COVID-19 lows. While sales appear to be turning flattish for its retail portfolio (+0.1% in 1H24, +1.8% suburban and 0.9% dip for downtown malls), this was mainly due to the gradual ramp-up of CQ @ Clake Quay within the downtown area.

(+) Office outlook remains stable. The REIT’s office portfolio continues to benefit from the tight office market in Singapore with close to 0.6mn sq. ft. of leasing done in 2024 with 18% of this leasing new leases. Demand mainly comes from the Real Estate and Property Services, Investments, and Financial Services segments. Average rent rose to SGD10.66psf/mth.

(+/-) Overseas properties seeing stable occupancy rates. The REIT’s German properties saw a dip in occupancy rates to 89.4% (from 92.1%), while the Australia portfolio remains steady at c.88% as of Jun ’24.

Positive share price reaction. CICT is one of the best performing large cap REITs in 2024, up +5% total returns. The ability to drive y/y growth in DPU will likely be seen positively by investors. Maintain our BUY call; TP SGD2.30 maintained.