Resilient portfolio performance
- 2H/FY23 DPU of 5.45/10.75 Scts made up 50%/99% of our FY23F forecast.
- CICT saw qoq improvements in occupancy amid positive rental reversions.
- Maintain Add rating with a slightly higher TP of S$2.18.
2H23 results update highlights
CICT reported a 4.1%/4% higher yoy 2H23 revenue/NPI to S$785.2m/S$563.6m due to higher rentals and occupancy rates achieved. Distribution income grew 2.1% yoy to S$369.5m. 2H23 DPU +1.6% to 5.45 Scts. FY23 DPU also improved 1.6% yoy to 10.75 Scts. Portfolio valuation +1.2% to S$24.5bn, as higher Singapore asset values offset the weaker property values in Germany (-10% yoy) and Australia (-9.6% yoy). CICT also announced a distribution reinvestment plan (DRP) applicable to its 2H23 distribution. Gearing improved 0.9% pt qoq to 39.9%. CICT indicated that it would be open to recycle assets at above book level and that a gearing level of 37-38% would be more optimal.
Positive rental reversions driven more by downtown retail malls
CICT’s retail portfolio enjoyed a +8.5% rental reversion for FY23, with downtown malls delivering a stronger +8.8%. Leasing enquiries came from F&B, beauty & health, and fashion sectors. Overall retail tenant sales and shopper traffic rose by 1.8% and 8.6% yoy, respectively, over the same period, resulting in an improvement in occupancy cost to 16.3%. CICT remains optimistic on its retail segment and anticipates retail rents to continue rising in the mid-single digit for FY24F. In terms of asset enhancement initiatives (AEI), CICT is planning to strengthen IMM Building’s (IMM) position as a regional outlet destination via a S$48m plan to increase the number of outlet stores by rightsizing the supermarket footprint and reconfiguring units. This exercise is expected to span over four phases, from 1Q24 to 3Q25. About 70% of the AEI space in Phases 1&2 has been precommitted to-date. CICT targets to achieve an ROI of 8%.
Office segment delivered strong occupancy
Office committed occupancy saw a 0.3% pt qoq increase to 96.7% at end-FY23, boosted mainly by higher take-up in Singapore and Australia. Office rent reversion was a healthy +9% for FY23 with leasing enquiries from banking, financial services, technology, media, and telecom (TMT), and manufacturing and distribution. CICT indicated that the planned AEI for Galileo would involve upgrading the building to a Grade-A LEED Gold certified property. The 18-month exercise starting Feb 2024 would cost c.€175m-215m. CICT indicated it is in advanced talks with a prospective financial services tenant to take up most of the space at the property. While there is income downtime during the development period, we think the impact will be muted (as Gallileo made up <2% of CICT’s FY23 portfolio value). CICT is also revitalising 101 Miller St in North Sydney by transforming the lobby into a best-in-class communal space, with meeting rooms and event space.
Reiterate Add rating
We lower our FY24-25F DPU by 1.23-3.56% as we tweak our assumptions for the AEI works. However, our DDM-based TP is raised slightly to S$2.18 as we lift our FY26F estimates and roll forward our assumptions. Potential catalyst: lower-than-expected rate hikes. Downside risks: slower-than-expected rental recovery and escalating opex or cost overruns as the trust executes on its AEIs that could affect projected returns.
