CapitaLand Integrated Commercial Trust (CICT), the first and largest Singapore-listed real estate investment trust (S-REIT), continued its portfolio reconstitution strategy in 2H24, delivering steady financial performance. The trust reported a distribution per unit (DPU) of 5.45 Singapore cents, remaining stable year-on-year (yoy), slightly exceeding analysts’ expectations.

CICT’s rental reversion was positive at 8.8% for retail and 11.1% for office properties, while its portfolio valuation increased by 1.4%, contributing to a revaluation gain of S$153 million. The acquisition of a 50% stake in ION Orchard further strengthened its positioning in Singapore’s prime retail market, raising the mall’s occupancy by 2 percentage points (ppt) to 98%.

Financial Performance (2H24)

• Gross Revenue: S$794.4 million (+1.2% yoy)
  • Retail Segment: S$297.5 million (+4.1%)
  • Office Segment: S$252.9 million (-4.5%) due to the divestment of 21 Collyer Quay
  • Integrated Developments: S$244.0 million (+4.0%) due to occupancy improvements
• Net Property Income (NPI): S$571.1 million (+1.3% yoy)
  • Retail NPI: S$208.8 million (+5.7%)
  • Office NPI: S$190.7 million (-6.5%)
  • Integrated Developments NPI: S$171.6 million (+5.9%)
• Occupancy Rates:
  • Retail: 99.3%
  • Office: 94.8%
  • Integrated Developments: 98.9%
• Aggregate Leverage Ratio: 38.5%, an improvement of 0.9ppt quarter-on-quarter (qoq), reflecting lower gearing​.

Strategic Developments and Asset Enhancement Initiatives (AEIs)

1. ION Orchard Acquisition
   • CICT acquired a 50% stake in ION Orchard on October 30, 2024, which contributed to rental income for two months in 2H24.
   • The acquisition reinforced CICT’s presence in prime retail areas, with tenant retention at 84.5% and a 3.4% increase in tenant sales per square foot (psf).
2. IMM Building Revamp
   • Phases 1 and 2 of AEI at IMM Building were completed, making it Singapore’s largest outlet mall with 110 stores.
   • Phases 3 and 4 are expected to complete by 3Q25, enhancing the retail mix with new brands.
3. Gallileo Office Upgrades (Frankfurt, Germany)
   • Mechanical, electrical, and plumbing system upgrades at the Gallileo building are underway, with the European Central Bank (ECB) set to take occupancy from 2H25.
4. Future Growth Potential at ION Orchard
   • Management sees opportunities to increase rental income through reconfiguring upper floors (Levels 3-5), with AEI planned over the next two years.
   • Plans for obtaining tax transparency status for ION Orchard are in progress​.

Market Position and Strategic Focus

• Predominantly Singapore-Focused: 94.5% of portfolio valuation remains in Singapore post the ION Orchard acquisition.
• Geographic Diversification: CICT will limit overseas expansion to Germany and Australia, instead of venturing into new markets.
• Integrated Developments as a Key Growth Area: CICT continues to expand its integrated developments, leveraging synergies between retail, office, and hospitality assets for sustainable growth.

Debt Management and Financial Stability

• Stable Cost of Debt: Average financing cost remained at 3.6%, and 76% of borrowings were on fixed rates.
• Debt Maturity Profile: CICT has a diversified debt structure, with well-staggered debt maturities from 2025 to 2035, reducing refinancing risks​.

Stock Valuation and Outlook

• Share Price (as of Feb 6, 2025): S$1.93
• Target Price: S$2.37, indicating a 22.8% upside
• Net Asset Value (NAV) per share: S$2.12
• Projected DPU for 2025-2027:
  • 2025F: 10.9 S cents
  • 2026F: 11.2 S cents
  • 2027F: 11.3 S cents
• Dividend Yield: 5.6% (2025F), increasing to 5.8% by 2027
• PE Ratio: 16.9x (2025F)​.

Investment Thesis

• Steady DPU Growth: Supported by positive rental reversions and strong occupancy rates.
• Portfolio Expansion & AEI: With the acquisition of ION Orchard and ongoing AEIs at IMM Building and Gallileo, CICT is poised for higher rental income.
• Lower Gearing & Strong Balance Sheet: Improved aggregate leverage (38.5%), stable cost of debt, and a well-managed debt maturity profile reduce financial risks.
• Resilience in Retail & Office Segments: The recovery in tourist arrivals and work-from-office trends supports demand for retail and office spaces.

Conclusion: Maintaining a BUY Rating

With strong fundamentals, ongoing AEI projects, and a well-diversified portfolio, CICT remains a top choice among S-REITs. The stable cost of debt, healthy rental reversions, and strong tenant demand further reinforce its long-term growth prospects. Maintaining a BUY rating with a target price of S$2.37, CICT presents an attractive investment opportunity for those seeking stable dividends and potential capital appreciation​

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