Singapore’s growth as a centre for commerce and technology is boosting returns for the largest REIT listed on the country’s stock exchange, with CapitaLand Integrated Commercial Trust (CICT) reporting an 11.3 percent increase in its net property income in the first quarter, compared to the same period in 2022.
The manager of the CapitaLand Group-sponsored trust said in announcing its most recent financial results last week that, thanks to rising rents in Singapore and expanded holdings in its home market, CICT’s net property income from the 26 assets in its portfolio reached S$276.3 million ($206.6 million) during the period from January through March.
The rising returns from properties including the CapitaGreen, CapitaSky and Capital Tower office towers, as well as the CapitaSpring integrated development, in Singapore’s urban core led the trust’s management to underscore its ongoing commitment to its home market in comments to investors in April.
“Singapore remains CICT’s stronghold and focused market for a foreseeable future,” the manager said in response to questions raised during its annual meeting on 19 April. Grade A office rents in Singapore’s core business districts rose by 5.9 percent in 2022, according to a report by Colliers International, with a separate update from JLL last month showing a further 1 percent increase during the first quarter.
Singapore CBD Assets Outperform
CICT’s gross revenues jumped 14.4 percent from a year ago to S$388.5 million during the first three months of 2023, led by a 31 percent surge in income from its office properties in Singapore’s downtown core, according to its latest business update on Friday.
Earnings were boosted by revenue contributions from the 70 percent stake the trust acquired in the CapitaSky office tower in Tanjong Pagar through a $930 million deal which closed in May of last year. Also providing more income were a set of three Sydney commercial assets which the trust acquired in a series of deals signed in December 2021.
The manager said that the additional income from these properties has more than offset higher operating expenses incurred from its sale of the JCube Mall to CapitaLand in early 2022.
By segment, CICT saw gross revenue from its office portfolio rise nearly 24 percent to S$128.2 million last quarter with occupancy climbing to 94.8 percent, boosted by the 1.4 percent uptick in average rents for its Singapore assets.
Net property income from its office properties rose 26 percent to S$92.9 million in the first quarter, with the trust also owning Asia Square Tower 2 along Marina View in Singapore and 21 Collyer Quay.
The manager said it expects CICT’s office buildings in Singapore to benefit from a growing preference among occupiers for top quality desk space, as more tenants relocate during the current redevelopment trend in the central business district.
Ranked as Singapore’s biggest retail landlord with a 9.1 percent market share, CICT posted annual revenues of S$144.8 million from Its shopping portfolio. This number was up 1.2 percent from a year earlier thanks to increased tenant sales and shopper traffic, as well as a slightly higher occupancy rate of 98.5 percent. The segment’s NPI dipped by 0.6 percent to S$101.2 million during the period.
While CICT’s downtown malls like Bugis Junction saw higher rental reversions than its shopping centres in the suburbs, the manager expects retail rents to continue to recover across the board this year on the anticipated tourism rebound and reopening of China’s borders.
Overseas Play Questioned
CICT has been ramping up its expansion overseas to diversify but the manager assured unitholders in its recent statement that its offshore exposure, currently accounting for 7 percent of its total assets, will not exceed 20 percent of it overall portfolio.
The manager said the trust’s entry into Australia in late 2021-early 2022 was timed to ride Sydney’s expected post-pandemic recovery and was supported by the local property management expertise of its sponsor, which has been in the market since 2015.
“Sydney is witnessing major development and rejuvenation initiatives in line with its government backed ambition to become a leading innovation and technology hub in the region,” it said during its annual meeting. “While CICT may be a small market player in the overseas market, there are opportunities to introduce ideas that have been implemented in Singapore to these overseas markets too.”
In Singapore, the trust’s outlook is challenged by a slowing office market, with JLL in April predicting more challenging conditions for landlords as tenant demand weakens this year.
Ongoing economic headwinds will continue to dampen business confidence and office demand in the near-term. Competition for tenants will keep rent growth modest, while tight credit conditions will keep pressure on capital values, the property consultancy said in an April report.