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AnalysisSingapore

8 things I learned from the 2023 CapitaLand Integrated Commercial Trust AGM

CapitaLand Integrated Commercial (CICT) is Singapore’s first and largest retail REIT, that owns a portfolio of high-quality commercial properties including office buildings, integrated developments, and shopping malls. As of 31 December 2022, CICT’s portfolio comprises 21 properties in Singapore; two properties in Frankfurt, Germany; and three in Sydney, Australia with a total property value of S$24.2 billion.

To learn more about the CICT’s past year’s performance and its outlook ahead, I attended their recent annual general meeting. Here are the eight things I learned from the 2023 CapitaLand Integrated Commercial Trust AGM.

1. Gross revenue increased 10.5% to S$1,441.7 million in FY2022 while net property income (NPI) rose by 9.7% to S$1,043.3 million. This positive performance was driven by increased revenue from gross rental income and gross turnover rent, as well as new acquisitions. Below are the year-on-year growth rates for the various segments of CICT’s portfolio.

Source: CapitaLand Integrated Commercial Trust

The relaxation of COVID-19 restrictions was a contributing factor for the positive impact on the performance of Singapore office and retail operations. However, there was a partial offset due to higher energy costs in FY2022, which were almost doubled from FY2021.

2. Distributable income grew 4.1% year-on-year to S$702.4 million in FY2022, while distribution per unit increased 1.7% to 10.58 cents. The management remains committed to delivering stable distribution and sustainable returns as they navigate through this uncertain macroenvironment.

Source: CapitaLand Integrated Commercial Trust

3. Gearing ratio is 40.4% as of 31 December 2022, below the regulatory limit of 50%. Average cost of debt is 2.7% and average term to maturity is 3.9 years. With a high proportion of fixed rate borrowings at 81%, CICT has increased flexibility for its floating rate borrowings. CICT has an interest coverage ratio of 3.7 and management has promised to continue adopting a focused approach towards capital management.

4. Portfolio occupancy rate is 95.8% as of 31 December 2022. Retail portfolio improved to 98.3%, beating Singapore’s average retail occupancy rate of 92.9%. The demand for office spaces in Singapore remained strong, as evidenced by a year-on-year increase of 5.8 percentage points in committed occupancy for its Singapore office portfolio, which reached 96.2%. Overall tenant retention rate stands at 81.1% for FY2022, with a healthy WALE of 3.7 years.

5. During the meeting, a unitholder expressed concerns about the impact of the work-from-home trend on CICT’s office occupancy rates. CEO Tony Tan acknowledged that flexible work arrangements are likely to persist in the long term, but reassured unitholders that this does not necessarily result in a reduction in office demand in Singapore. CICT has adopted a ‘core and flex’ strategy to meet the evolving needs of its office tenants. For instance, CICT manages flexible workspaces in partnership with The Work Project at CapitaSpring and Six Battery Road, while also using leased models with flex space tenants such as JustCo at Asia Square Tower 2 and WeWork at 21 Collyer Quay. This approach allows CICT to cater to tenants looking for flexible solutions for office space.

6. Another unitholder expressed concerns about CICT’s future growth prospects amidst the current economic climate and rising interest rates. The CEO acknowledged that it has been challenging to pursue inorganic growth through acquisitions due to the higher cost of capital. However, he emphasized that CICT also has other organic growth opportunities within its portfolio of 21 properties through asset enhancements to increase value and potential rents. Regarding the current high interest rate environment, the CEO believes that it will eventually normalize. He added that real estate remains an effective hedge against inflation, as rental prices can adjust upwards as tenant sales increase.

7. A unitholder asked if CICT monitors physical office occupancy rates. The CEO responded affirmatively, stating that the company tracks the number of people returning to work. Currently, the occupancy rate ranges from 60 to 70% per week, with peaks on Tuesdays and Wednesdays. However, the data varies from building to building due to differing company policies. Overall, the occupancy rate remains at a healthy level and has been stabilizing over the past few months.

8. A unitholder inquired about how CICT’s ESG initiatives impact its financial performance. The CEO responded by stating that ESG initiatives may involve capital expenditures at the outset, they have become a necessary and expected aspect of doing business. The CEO assured unitholders that CICT will remain strategic in its investment decisions and prioritize effective management of its CAPEX. Chairman Teo Swee Lian chimed in, noting that ESG initiatives are critical for every company and represent a long-term journey.

The fifth perspective

Despite the current macroeconomic environment being uncertain, CICT has demonstrated resilience in its track record and performance. The REIT is looking to expand its organic growth and value, ensuring its continued success in the long term. As a major player in the Asia Pacific REIT market, CICT possesses the necessary scale and resources to capitalize on growth opportunities both domestically and internationally, particularly in Singapore.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Brandon Teo

Brandon has a strong interest in analysing equities, focusing on fundamentals and growth. He graduated with a Diploma with Merit in Business at Temasek Polytechnic and ranked first in his course. With a passion for the finance field, Brandon will be exploring the investment banking sector. He is currently pursuing a business degree as an undergraduate at Singapore Management University.

2 Comments

  1. Hi Mr Teo, may I ask if you or your colleagues cover FuYu’s recent AGM? If so, please share with me your thoughts on this company. ThankYou. THH.

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