CapitaLand Integrated Commercial Trust (CICT) is Singapore’s largest diversified real estate investment trust (REIT) with a portfolio valuation of S$24.5 billion which includes 21 properties in Singapore, two in Frankfurt, Germany, and three in Sydney, Australia.
In 2024, CICT has continued to assert its position as a significant player both domestically and internationally, consistently demonstrating robust operating metrics with high portfolio occupancy rates and strong rent reversions across its retail and office assets.
To gain a deeper understanding of CICT’s strategic approach and future plans, I had the opportunity to attend a closed-door dialogue session with the CICT management team. This exclusive event provided valuable insights into the REIT market and a clearer view of CICT’s growth strategies moving forward and provided key insights into the resilience of CICT.
Here are seven things I’ve learned at the event.
1. CICT demonstrated strong resilience amid challenging conditions. Despite significant headwinds in the REIT sector over the last few years, such as high interest rates and economic uncertainties, CICT has proven its resilience through strategic asset management and portfolio optimization. In the last financial year, CICT increased its net property income by 5.4% to S$582.4 million, maintaining a robust portfolio committed occupancy rate of 96.8%, with strong rent reversions of 9.3% for its retail portfolio and 15% for its office portfolio year-to-date June 2024.
CICT’s gross revenue also rose by 2.2%, from S$774.8 million to S$792 million. This growth was driven by healthy rent reversions and disciplined cost management. The REIT achieved a 5.8% reduction in operating expenses, mainly through lower utility costs and savings from a new property management agreement.
Thanks to these efforts, CICT’s distributable income increased by 3.7%, reaching S$366.5 million. Additionally, its well-structured debt profile, with an average cost of 3.5% and 76% of borrowings on fixed interest rates, has helped buffer against market volatility. With a stable weighted average lease expiry of 3.6 years, CICT benefits from a solid foundation of committed tenants. This strong tenant base enables CICT to maintain consistent returns, further reinforcing its status as a resilient leader in the REIT sector.
2. Institutions shifting toward targeted investment strategies. As the macroeconomic landscape evolves, institutional investors are increasingly focusing on more targeted investment strategies. They’re scaling back the number of investments to concentrate on opportunities that offer greater liquidity and access to specialized assets.
In response to this trend, CICT strategically merged CapitaLand Commercial Trust (CCT) with CapitaLand Mall Trust (CMT). This merger was designed to enhance the liquidity of their portfolio, making CICT a more attractive option for institutional investors looking for diversified yet focused investment opportunities within the region.
3. CICT’s plan to tap into dynamic market beyond Singapore. During the session, CICT CEO Tony Tan emphasized that the REIT’s strategy includes actively seeking investment opportunities in international markets that offer high-quality assets at reasonable valuations. He acknowledged the limitations of Singapore’s real estate market, highlighting its finite size and the increasing impact of price controls, which are likely to present challenges in the future due to land constraints and the competitive landscape domestically.
Tan also pointed out that while CICT is considered a large-cap REIT in Singapore, with a fund size of S$24.5 billion, it would be classified as a small-cap fund in the U.S. market. This perspective underscores CICT’s need to expand beyond Singapore to sustain its growth trajectory and capitalize on opportunities in larger, more dynamic markets.
4. CICT’s strategic focus on asset management and quality investments. Over the coming years, CICT plans to focus on de-risking its existing assets while strategically investing in high-quality properties, all without disrupting its current portfolio. This approach is crucial in navigating the evolving retail landscape, which hinges heavily on consumer behaviour. Tan highlighted that managing this evolution is both an art and a science—a balance that CICT has meticulously cultivated. The REIT has invested considerable effort in ensuring that its malls remain relevant amidst the rise of e-commerce, while simultaneously diving deep into data analytics to secure consistent financial growth and deliver strong returns in its retail segment.
He also emphasized the importance of developing a hybrid strategy that supports both online and offline shopping experiences. CICT aims to create a strong retail network by curating the right mix of tenants that drive foot traffic and enhance the in-mall experience. A prime recent example of this strategy is CICT’s collaboration with bubble tea brand Chagee, tapping into the rising trend of premium bubble tea culture. By leaning into such consumer trends, CICT is able to maintain the relevance of its malls and attract a new wave of shoppers.
5. Leveraging asset enhancement initiatives to drive long term value. Management has also highlighted that they are dedicated to their portfolio’s asset enhancement initiatives (AEIs), which would strategically drive long-term value for investors. Ongoing projects, such as the Level 1 AEI at IMM Building in Singapore, aim for a target return on investment of approximately 8%. With a committed occupancy rate of 98.7% and new tenants like Leonian Outlet, Oh!Sunny Outlet, and Din Tai Fung set to open in Q4 2024, these efforts will strengthen the property’s market position.
Additionally, CQ @ Clarke Quay has transformed into a vibrant lifestyle hub, while enhancements at Gallileo in Frankfurt are on track to meet the needs of the European Central Bank. The revitalization of the ground lobby at 100 Arthur Street has also been well-received by tenants. CapitaLand’s proactive asset enhancement strategy addresses current market demands, ensuring sustained occupancy and tenant interest, ultimately generating promising returns for investors over the long term.
6. Growing interest from international retailers. CICT’s management team has noted a growing interest from international retailers, particularly from the Middle East and China, in entering the Singapore retail market. This influx of foreign brands reflects Singapore’s appeal as a regional retail hub, but it also poses challenges in terms of integrating these retailers into the local retail network. Bringing these foreign retailers into CICT’s malls requires a meticulous approach, involving thorough due diligence and targeted marketing efforts to create a compelling value proposition for both consumers and retailers.
CICT’s strategy involves not only generating consumer interest but also ensuring that existing retailers remain competitive against this wave of international entrants. This delicate balance is essential to sustain the vibrancy of CICT’s malls while driving growth and staying ahead of market trends. By aligning itself with global retail developments and fostering a diverse tenant mix, CICT is positioning its portfolio to adapt and thrive in a competitive, ever-changing market landscape leveraging on their strong retail management skillsets.
7. Leveraging prudent financing to drive future growth. CICT has maintained a prudent financing strategy, historically opting against any divestments while closely managing its capital structure. The management team is actively exploring refinancing options for its borrowings, aiming to take advantage of market conditions that allow for longer-duration loans, thereby minimizing the risk of negative carry. Tan indicated a strategic focus on leveraging longer-term debt, anticipating a steepening of the yield curve over time.
On July 10, 2024, CICT successfully issued S$300 million in 10-year fixed-rate green notes at an attractive 3.75%, reinforcing its commitment to sustainable financing. Following June 2024, approximately 80% of the debt expiring in the second half of the year has either been refinanced or is in the documentation stage, demonstrating CICT’s proactive approach to ensuring financial stability and optimizing its capital costs.
The fifth perspective
CICT’s long-term vision is underscored by its commitment to enhancing asset value through AEIs and adapting to evolving retail trends, allowing it to effectively seize opportunities for sustained growth and returns. The management’s balance of creativity and analytics in retail has enabled the REIT to remain relevant and profitable amid strong competition. CICT’s strategic focus on maintaining a high-quality tenant mix and ongoing asset enhancement initiatives further solidifies its market position. With a proven track record of increasing its distributable income, CICT stands out as a reliable REIT for unitholders .
