CapitaLand Integrated Commercial Trust’s Full-Year 2020 Earnings: 5 Aspects Investors Should Know About

2021-01-25     thesmartinvestor
CapitaLand Integrated Commercial Trust’s Full-Year 2020 Earnings: 5 Aspects Investors Should Know About

With the rollout of vaccinations in Singapore already underway, most people will be looking forward to resuming a semblance of normalcy in everyday life.

Along with transitioning into the new normal, investors will be on the lookout for recovery stocks.

CapitaLand Integrated Commercial Trust (SGX: C38U), or CICT, is one of Asia’s largest commercial REITs and could stand to benefit from a strong recovery in shopping traffic.

CICT recently released its full-year financial results for 2020, its first report since the merger between CapitaLand Mall Trust and CapitaLand Commercial Trust was completed to form CICT.

Here are five key points investors should take note of.

Portfolio occupancy remains strong

CICT reported a high overall portfolio occupancy rate of 96.4% as of 31 December 2020.

Retail occupancy remained strong at 98.0%, higher than the Singapore national retail occupancy rate of 90.4%.

Most of CICT’s malls maintained close to maximum occupancy, but CICT’s Clarke Quay asset saw occupancy drop to 90.1%, from 100% on 31 December 2019.

The Clarke Quay property, consisting of five blocks of restored shophouses and warehouses, was hit hard by government regulations restricting the sale of alcohol and operation of nightlife venues.

On the office space front, CICT reported office occupancy of 94.9%, slightly lower than the national average committed occupancy of 95.1%.

However, this should not overly alarm investors as CICT’s Six Battery Road office building reported a low occupancy of 77.9% due to current upgrading works.

Shopper traffic continues recovery

Shopper traffic at CICT’s malls has recovered to 67.9% from the level a year ago in 4Q 2020 as crowds returned to malls for their year-end festive shopping.

This is an improvement from the shopping traffic between June and September, which was about 59.6% of the level from the corresponding period a year ago.

More crucially, the shoppers who returned to the malls have been splashing out the cash.

Per square foot tenant sales have recovered to 94.5% in the final quarter of 2020 compared to the same period last year despite the relatively lower footfall.

Negative rental reversions

Investors typically watch the rental reversions of a REIT to see if the investment trust has managed to increase rental rates to garner more revenue.

Thus, it will be of concern to investors that CICT reported negative rental reversions of 6.6% year on year across its retail assets.

The COVID-19 pandemic definitely had an adverse impact on both retail and commercial REITs, and CICT was not spared either.

The REIT had to accept lower rents across all its malls as social-distancing measures and lockdowns hit retailers hard.

The damage was greatest at CICT’s Raffles City, which endured negative rental reversions of 22.2%.

On a brighter note, CICT’s office assets had positive rental reversions, although the exact quantum was not disclosed.

Dip in DPU

For the fourth quarter of 2020, CICT declared a distribution per unit (DPU) of S$0.0263.

Of this total distribution, S$0.0089 was paid to unitholders of CapitaLand Mall Trust on 19 November 2020.

The remaining S$0.0174 will be paid to CICT unitholders on 9 March 2021.

The last distribution for fiscal year 2020 means that CICT paid a total DPU of S$0.0869 in 2020, a year on year decline of 27.4%.

Although the REIT reported that net property income (NPI) enjoyed a year on year increase of 36.4% in the last quarter, this was largely due to the added contribution from CapitaLand Commercial Trust’s assets post-merger.

Investors should also note that CICT will be switching to a semi-annual distribution from 2021 onwards.

Market outlook

Despite the short-term pain caused by the fall in DPU, investors should remain positive about CICT’s prospects.

Shopping traffic continues to tick up and shoppers are spending more than before.

The REIT continues its efforts to attract shoppers by transforming mall spaces and transitioning to provide an omnichannel experience.

CICT’s assets are also better diversified with the office properties added from the merger.

In addition, CapitaSpring, a new 51-storey integrated development in the heart of the central business district, is slated to open in the second half of 2021.

CapitaSpring will be the fifth integrated development in CICT’s portfolio as the REIT attempts to leverage on the global live-work-play trend.

The development already has a committed occupancy of 38%, with another 22% under advanced negotiations.

With a total net lettable area (NLA) of 635,000 square feet, the property should contribute to higher NPI and DPU for investors when it is fully operational.

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Disclosure: Herman Ng owns shares of CapitaLand Integrated Commercial Trust.

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