CICT’s DPU Continues to Climb: 5 Highlights from the Retail and Commercial REIT’s Latest Earnings

The REIT sector may be facing headwinds from a combination of high inflation and surging interest rates, but don’t tell that to CapitaLand Integrated Commercial Trust (SGX: C38U), or CICT.

The retail and commercial REIT just reported its fiscal 2023’s first half (1H 2023) results and joins a rare group of REITs that managed to report higher distributions despite these twin challenges.

Last week saw data centre REIT Keppel DC REIT (SGX: AJBU) and healthcare REIT Parkway Life REIT (SGX: C2PU) announce year-on-year distribution per unit (DPU) increases.

The better performance came about because of acquisitions, proactive asset management, and asset enhancement initiatives (AEIs).

Let us dive in to review five aspects of CICT’s latest earnings report.

1. A strong financial performance

For 1H 2023, CICT reported a 12.7% year on year rise in gross revenue to S$774.8 million.

Revenue was driven by the REIT’s acquisitions and the completed AEI at Raffles City.

Net property income climbed 10.1% year on year to S$552.3 million.

Distributable income, however, inched up by just 1.7% year on year to S$353.2 million, weighed down by higher finance costs arising from additional borrowings along with elevated interest rates.

As a result, DPU edged up 1.5% year on year to S$0.053.

Coupled with 2H 2022’s DPU of S$0.0536, CICT’s trailing 12-month DPU stood at S$0.1066, giving its units a trailing distribution yield of 5.2%.

2. Minimal refinancing needs for 2023

With interest rates being a bugbear, investors will naturally focus on CICT’s debt metrics.

On this aspect, there is little to worry about as the REIT manager has minimal refinancing needs for the remainder of 2023.

Just 1% of the REIT’s total debt, or S$130 million, needs to be refinanced by November this year and the manager has the necessary facilities in place.

Aggregate leverage stood at 40.4%, slightly lower than the 40.9% reported three months ago.

CICT’s average cost of debt remained stable at 3.2% with 78% of its borrowings on fixed rates, thus mitigating against a sharp jump in finance costs.

The REIT manager has stated that a one percentage point increase in interest rates will reduce DPU by S$0.0032, or around 3% of the trailing 12-month DPU.

3. Robust operating metrics with healthy tenant diversification

CICT’s portfolio continues to display solid operating metrics.

Committed occupancy improved from 96.2% as of 31 March to 96.7% for 1H 2023.

The portfolio’s weighted average lease expiry (WALE) by gross rental income stood at 3.6 years.

Both its retail and commercial divisions performed well, with the former reporting an occupancy rate of 98.7% and the latter enjoying occupancy of 95.4%.

CICT also boasts a wide range of tenants in sectors such as food and beverage, financial services, and retail.

No single tenant contributes more than 5.4% of the REIT’s total gross rental income.

4. An encouraging retail segment report

Retail has recovered strongly with the reopening of borders and resumption of air travel.

CICT was able to retain 86.8% of tenants for 1H 2023.

The REIT also reported a positive rental reversion of 6.9% for suburban mall retail rents and 7% for its downtown malls.

Both tenant sales and shopper traffic saw improvements, with tenant sales per square foot (psf) exceeding 2019 levels.

For 1H 2023, tenant sales rose 6% year on year for the retail portfolio, driven by higher tourist arrivals and increased local spending.

Shopping traffic climbed 17.5% year on year with downtown malls seeing a return of tourists along with larger office crowds as more people returned to the office.

CICT continues to curate and enhance in-store experiences by introducing diverse offerings to attract more customer flow.

The REIT has launched several new-to-market offerings in its malls such as Japan’s Mister Donut in Junction 8 and Australian bubble tea chain CHAFFIC at Westgate.

5. AEIs to deliver further value

The ongoing AEI at CQ @ Clarke Quay is slated for completion in the later part of 2H 2023.

CICT has lined up new food and beverage offerings such as Mexican restaurant Sanchos and Seafood Paradise with the addition of a live music venue and restaurant Simply Retro by Tin Box.

Once completed, these new introductions should liven up the area and attract more tourists and locals.

Disclosure: Royston Yang owns shares of Keppel DC REIT.