4Q23 Results Analysis: Strong Singapore Inc
- FY23 DPU +1.6% y-o-y to 10.75 Scts, in line with our estimates. 4Q23 revenue and NPI +0.7% q-o-q and 5% q-o-q respectively, held up by office.
- Key Positives: i) estimated 4Q23 reversions remained high for both retail and office, ii) more than half of office leases expiring in FY24 is in advance negotiations; iii) retail occupancy cost at 16% with room to grow; iv) Clarke Quay AEI completed with 50% new tenants
- Key factors to watch: i) Gallileo AEI for 18 months post tenant vacating; ii) potential asset recycling
- Maintain BUY; TP of S$2.30.
What Happened
FY2023 performance was in line with our estimates, gearing trend down marginally with improved valuation mainly from Singapore assets; more than half of the office leases expiring in FY24 are currently in advance negotiation. CICT’s FY23 DPU +1.6% y-o-y to 10.75 Scts, in line with our estimates. This was led by revenue and NPI growth of 8% y-o-y and 7% y-o-y respectively. 4Q23 revenue and NPI grew 4% y-o-y (0.7% q-o-q) and 8% y-o-y (5% q-o-q) respectively. 4Q23 portfolio NPI was held up mainly by office (+26% y-o-y; 19% q-o-q) while retail was stable (+1.6% y-o-y; flat q-o-q) and integrated development (-5% y-o-y; -5% q-o-q). Gearing improved to 39.9% vs 40.8% in 3Q23 mainly due to a slight increase in portfolio valuation (+2% y-o-y) while average cost of debt inched up marginally q-o-q to 3.4% vs 3.3% in 3Q23). ICR remained stable at 3.1x. Portfolio valuation was mainly held up by Singapore assets (+2% y-o-y; retail +2.9%; office +0.8%) despite stable cap rates. Australia assets -10% y-o-y with 37bps to 87bps cap rates expansion while Germain office valuation -10% with terminal yield expanded 1.45% to 1.9%. Key highlights from operations: i) portfolio occupancy stable q-o-q at 97.3%; ii) estimated reversions were higher for both retail (11%) and office (9%) in 4Q23 (retail reversions were mainly from suburban portfolio (+12%); iii) tenant sales +2% y-o-y mainly led by downtown mall (+3% y-o-y); iii) occupancy cost was at 16.3% with room to grow; iv) CICT is in advanced negotiation for more than half of office leases expiring in FY24 (4.5% of 8.3% leases expiring) and 12% of retail leases (1.5% of 12.3% leases expiring); v) AEI at Clarke Quay was completed with target launch in 2Q24 with a refreshed look and 50% of new tenants; previously announced committed occupancy (including advanced negotiations) is >85%; vi) average office signing rents inched higher to S$10.49psf vs S$10.45psf in 3Q23.
Our View
Singapore assets remain strong with room to grow, partially offset by the departure of tenant and AEI plans at Gallileo. CICT delivered strong performance during a challenging FY23, mainly driven by its Singapore office portfolio. Post the completion of Clarke Quay AEI, CICT embarks on new AEI at IMM, North Sydney office assets and Gallileo post the departure of its tenant at the end of Jan24. We expect Singapore assets will likely remain stable with upside from retail and office, riding on the strong positive reversions over the past year. However, overall growth could moderate with the AEI plans at Gallileo. Recent news have reported potential asset recycling by CICT which could bode well for investors to pare down gearing levels, in our view. We maintain our BUY rating and TP of S$2.30. With more than 90% of its portfolio comprises Singapore assets, we believe CICT is a close proxy of the resilient Singapore economy.
| Summary of results | 4Q2023 | 3Q2023 | % q-o-q | 4Q2022 | % y-o-y | FY2023 | FY2022 | % y-o-y |
| Revenue (S$m) | 393.9 | 391.3 | 0.7% | 380.0 | 4% | 1,559.9 | 1,441.7 | 8% |
| NPI (S$m) | 288.6 | 275.0 | 4.9% | 268.4 | 8% | 1,115.9 | 1,043.3 | 7% |
| Income avail for distribution (S$m) | n/a | n/a | n/a | n/a | n/a | 728.5 | 713.0 | 2% |
| Income distributed (S$m) | n/a | n/a | n/a | n/a | n/a | 715.7 | 702.4 | 2% |
| DPU (Scts) | n/a | n/a | n/a | n/a | n/a | 10.75 | 10.58 | 1.6% |
| Gearing (%) | 39.9% | 40.8% | -0.9 ppt | 40.4% | -0.5 ppt | 39.9% | 40.4% | -0.5 ppt |
| Average cost of debt (%) | 3.4% | 3.3% | 0.1 ppt | 2.7% | 0.7 ppt | 3.4% | 2.7% | 0.7 ppt |
| WALE (yrs) | 3.4 | 3.5 | -0.1 | 3.7 | -0.3 | 3.4 | 3.7 | -0.3 |
| ICR (x) | 3.1 | 3.1 | 0 | 3.7 | -0.6 | 3.1 | 3.7 | -0.6 |
| Hedging ratio | 78% | 78% | 0 ppt | 81% | -3 ppt | 78% | 81% | -3 ppt |
Source: Company, DBS Bank Ltd
| Key Operational Data | 4Q2023 | 3Q2023 | % q-o-q | 4Q2022 | % y-o-y |
| Portfolio occupancies | 97.3% | 97.3% | 0 ppt | 95.8% | 1.5 ppt |
| Retail | 98.5% | 99.0% | -0.5 ppt | 98.3% | 0.2 ppt |
| Office | 96.7% | 96.4% | 0.3 ppt | 94.4% | 2.3 ppt |
| Integrated Developments | 98.5% | 98.0% | 0.5 ppt | 97.1% | 1.4 ppt |
| Rental reversions (%) | |||||
| Retail (cumulative) | 8.5% | 7.8% | 0.7 ppt | -1.5% | 10 ppt |
| – suburban | 8.3% | 7.4% | 0.9 ppt | 0.7% | 7.6 ppt |
| – downtown | 8.8% | 8.4% | 0.4 ppt | -3.5% | 12.3 ppt |
| Office (cumulative) | 9.0% | 8.8% | 0.2 ppt | 7.6% | 1.4 ppt |
| Portfolio WALE (years, GRI) | 3.4 | 3.5 | -0.1 | 3.7 | -0.3 |
| Retail | 2.0 | 2.1 | -0.1 | 2.2 | -0.2 |
| Office | 3.4 | 3.5 | -0.1 | 3.8 | -0.4 |
| Integrated development | 4.9 | 5.0 | -0.1 | 5.2 | -0.3 |
| Shopper Traffic (y-o-y, cumulative) | 8.6% | 12.9% | -4.3 ppt | 25.0% | -16.4 ppt |
| Tenant Sales (y-o-y, cumulative)) | 1.8% | 4.0% | -2.2 ppt | 22.5% | -20.7 ppt |
| Av office rent (S$psf pm) – SG | 10.49 | 10.45 | 0.4% | 10.53 | 0% |
Source: Company, DBS Bank Ltd