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Is CapitaLand Integrated Commercial Trust (CICT) Worth Holding for the Next 10 Years

CapitaLand Integrated Commercial Trust (CICT) released its full year 2021 results. Is this Singapore REIT worth holding in your portfolio?
  • Gross revenue of S$1.3 billion.
  • Net property income (NPI) of S$951 million.

Net property income is the profits that a company would get after deducting property-related costs. It’s a quick measure to see how profitable a Singapore REIT is.

This is what CapitaLand Integrated Commercial Trust (SGX: C38U), CICT, makes after CapitaLand Mall Trust merged with CapitaLand Commercial Trust. Not too bad. 

Last year, CICT produced a total S$674 million of distributable income. That’s 10.40 cents per unit of distribution (DPU) as dividends. And this was much higher than CICT’s DPU in 2020, during the height of the COVID pandemic. 

That’s a 5.1% dividend yield today.

What’s interesting is CICT can produce results despite granting tenants their rental waivers. In fact, CICT continued to maintain their high retail occupancy rate and tenant retention rate. As long as CICT retains their tenants, it’s only a matter of time before tourists, office crowd, shopper traffic starts to come back.

It’s a bet I’m willing to take.

But that’s not the story I want to tell today…

CICT’s Solid CBD Office Assets

Even though their office occupancy is at 91%, there’s a big trend in Singapore that companies are getting workers to come back to office. According to Cushman & Wakefield and Knight Frank, office market rents are expected to improve in the near future.

And rent renewals are expected to adjust upward.

The reason for this is simple. 

There’s a flight to quality relocations and demand for space in newer, greener buildings (which is what CICT is advocating recently). And this will help Asia’s office market recover from its longest downward rental cycle in 20 years.

CICT has five big Singapore office properties — Asia Square Tower 2, CapitaGreen, Cpaital Tower, Six Battery Road and 21 Collyer Quay — and five integrated developments that have office spaces — Raffles City Singapore, Plaza Singapura, The [email protected], Funan and CapitaSpring.

And what’s driving demand to CICT’s offices are the upcoming sectors — IT, media & telecommunications and financial services. 

Then, there’s also demand for office space to  support investment firms and family offices. 

Don’t forget, Singapore is a wealth management hub that has pulled big finance firms and entrepreneurs into Singapore.

Some of CICT’s big tenants today include NTUC, Commerzbank, Temasek, GIC Private Limited, WeWork Singapore. CICT also recently signed 1.9 million sqft of new leases and renewals for the year — 1 million from retail and 800,000 from office space. These include GIC, Mabanaft, Sephora and Calvin Klein.

That’s why I bet…

Newly Committed Rents will be Higher in the CBD

In fact, all its four commercial properties have committed rent are far higher than their expired rent (see below).

Source: CICT 4Q2021 Presentation Slide

In the latest fourth quarter of 2021, grade-A office rent went up to S$10.80/sqft.

Source: CICT 4Q2021 Presentation Slide

By 2026, JLL estimates its monthly average rent for CBD Grade A offices could rise more than 30%. And over the near term, rent growth could more than double compared to last year.

What’s more important, supply is limited in the CBD in Singapore. And Singapore is not putting up new office land sales in the coming years.

In fact, Singapore’s office space new supply only averaged 800,000 square feet over the last four years. That’s not a lot considering that there’s an average 600,000 square feet of office space in demand over the past years. There’s little supply within the CBD region.

Source: CICT 4Q2021 Presentation Slide

Here’s what I like about CICT, that they are a resilient landlord that can weather the toughest of the pandemic that crushed them over the last two years.

With the merger, CICT is set to continue expanding beyond Singapore. 

Its gearing ratio is only at 37.2%. With a cheap borrowing cost of 2.3%/year, CICT still has the firepower to borrow money to grow its property portfolio. 

Can CICT Continue to Grow For the Next 10 Years?

What’s more it recently sold off JCube for S$340 million. And CICT plans to redeploy their capital overseas. 

And what’s more, properties such as 21 Collyer Quay and Six Battery Road have finished renovation, plus the newly completed CapitaSpring and three Sydney assets are all expected to contribute to CICT’s net income later this year.

If you ask me, CICT can continue to hold for the next 10 years.

Sometimes investing can be simple.

Willie Keng, CFA

Founder, Dividend Titan

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Chin Beng
Chin Beng
4 months ago

Thank you for sharing your insights.

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