Singapore

RENTAL reversions at Capitaland Integrated Commercial Trust (CICT)'s malls were a negative 6.6 per cent in FY20, but the chief executive of the manager, Tony Tan, hopes that this is the bottom for the real estate investment trust (Reit).

The Reit would only be willing to accept lower rents for tactical reasons, he said, such as to include certain brands that would improve traffic for a mall.

Throughout the Covid-19 period, Mr Tan noted, CICT has had to balance between retaining tenants and managing rentals.

"It's a trade-off. What do you want? You want occupancy or you want to hang on to your rent? The cash flow impact can sometimes be bigger than the reversion impact," he said, in a post-results call with the media and analysts. Cash flow can affect gearing and landlords' ability to engage with the authorities.

He added that given the present pandemic, negative rental reversions should be expected whereas a headline number of positive rental reversions might belie internal arrangements made and "sweeteners" added for tenants.

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CICT's manager has tried to maintain an "uplifting" environment in its malls by minimising hoarding and vacancies.

Its strategy with tenants has also been to help ease their cash flow problems in the short term while sharing in the upside when they do well.

The Reit's office portfolio, however, achieved positive rental reversions. This was despite usage of office properties remaining relatively low.

CICT estimates that only 43 per cent of those working within its buildings had returned for work as at Jan 15, 2021, well below the government's allowance of 50 per cent.

The Reit - formed from a merger between CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust last year - posted a distribution per unit (DPU) of 2.63 Singapore cents for its fourth quarter ended Dec 31, down 15.4 per cent from 3.11 cents a year ago.

This includes a clean-up distribution of 0.89 cent for the period from Oct 1 to Oct 20 paid to CMT unitholders on Nov 19. The remaining DPU of 1.74 cents for the period Oct 21 to Dec 31 will be paid out on March 9, following book closure on Jan 29.

Gross revenue was up 36 per cent at S$276.5 million for the quarter, from S$203.4 million a year ago, mainly due to the merger. Excluding the merger effect, gross revenue was S$28.3 million lower than for Q4 2019.

This was due to lower gross rental income arising from rental waivers granted by the landlord to tenants, as well as lower occupancy and rental rates contracted on new and renewed leases.

Net property income (NPI) grew 36.4 per cent on the year to S$191.9 million, from S$140.7 million. Distributable income to unitholders rose 26.8 per cent year on year to S$145.4 million, from S$114.6 million.

For the full year ended Dec 31, DPU was lower at 8.69 cents versus 11.97 cents a year ago. Distributable income fell 16.4 per cent to S$369.4 million. Gross revenue was 5.3 per cent lower at S$745.2 million, while NPI eased 8.1 per cent to S$512.7 million.

Mr Tan in the briefing urged against reading too much into the Reit's metrics given "noise" in FY20 from Covid-19 and the merger impact and consequent need to "clean up" the numbers.

Citi analyst Brandon Lee said the results underlined the ongoing recovery of the retail sector, with tenants' sales per square foot (psf) only 5 per cent off pre-Covid levels in Q4.

"But we believe at 1.18 times price-to-book, the share price has likely priced in a full recovery. Organic earnings growth is another concern for us given continued retail negative reversion and FY21 expiring office rents of S$10.75 psf (being renewed) below spot of S$10.40 psf."

Units of CICT closed at S$2.30 on Thursday, down S$0.05 or 2.13 per cent.