CapitaLand Integrated Commercial Trust (CICT)

[weijian]

IIRC, this is probably the biggest greenfield development done by a SGX listed REIT. Most development work by REITs are mainly restricted to AEIs on existing assets. CICT is no stranger to large scale AEIs - Clarke Quay, Lot One and IMM in recent years. The biggest was probably Funan Digital Mall which cost a whopping 560mil to redevelop in 2016 and re-opened in 2019 with a totally new concept. The tender price + total development cost is ~2.6bil for the entire retail/commercial component and so this Hougang development will probably dwarf the previous Funan redevelopment and be a billion upwards for CICT.

In the meanwhile, the sale of Bukit Panjang Plaza is apt as the sales proceeds will be used to "cushion" the DPU loss in the next few years.

CICT and Consortium awarded Hougang Central site for landmark mixed-use development

Under the joint development structure, CICT will develop and own 100% of the commercial component. CLD and UOL, in a 50:50 joint venture, will develop the residential component for sale, combining their strong track records in high-quality developments.

This investment presents an opportunity to expand our retail footprint in Singapore where well-located suburban malls at major transport nodes are tightly held and rarely available, while establishing a strategic foothold in the northeast region. Growing via development is one of our strategic levers to create value. By participating at the development phase, we gain an attractive entry yield with an expected yield on cost of over 5%1, which compares favourably with recent transactions of operating assets in the market.

As the first GLS parcel in the Hougang area since 2019, this development is a transformative milestone for the precinct. With approximately 300,000 sq ft of net lettable area for retail and lifestyle concepts, the development will house the largest mall in Hougang, serving as a key anchor for the precinct’s next phase of growth.

With direct connectivity to the North-East Line and a planned link to the Cross Island Line by 2030, the site is poised to become a key transport node. The development will also benefit from nearby amenities such as Punggol Community Club, Hougang Sports Centre, and Punggol Park. Several established primary schools are also located within 1 km and 2 km of the development.

https://links.sgx.com/FileOpen/CICT_Pres...eID=872001

[weijian]

I am generally skeptical of REIT as an asset class for an investment. So I have to admit that CICT (and Parkway Life REIT) made my skepticism look silly. Despite multiple EFRs, AEIs and asset turnovers, CICT managed to have relatively impressive DPU growth for 2H +9.4% YoY and FY +6.4% YoY.

But what really looks masterful is the 2 twin deals done recently - announcement of an Hougang Central site development (of the retail component) together with divestment of Bukit Panjang Plaza (BPP) at 10% above Dec2025 valuation. In essence, the REIT manager did many positive things - (a) Extending your capability beyond AEI to development. Higher short term risk for higher future gains. (b) Selling a mature asset (BPP) with inferior locale at lower cap rates, and re-allocate the capital to a new greenfield asset which has twice the NLA (net lettable area) and better connectivity. © By executing them at similar timeframes, it also allay fears of a future (and uncertain) EFR raising.

CICT delivers strong 2H 2025 performance with 9.4% growth in distribution per unit to 5.96 cents

CapitaLand Integrated Commercial Trust (CICT or the Trust) today announced a distributable income growth of 16.4% year-on-year (YoY) to S$449.0 million for the six months ended 31 December 2025 (2H 2025), compared to S$385.7 million in 2H 2024. This increase was driven by income contributions from ION Orchard1, step-up acquisition of CapitaSpring’s commercial component2, stronger performance from existing properties and lower interest expenses, partially offset by the divestment of 21 Collyer Quay3.

https://links.sgx.com/1.0.0/corporate-an...92ac98215f

[swakoo]

I am generally skeptical of REIT as an asset class for an investment. So I have to admit that CICT (and Parkway Life REIT) made my skepticism look silly.

Several eminent and well respected posters in the predecessor to this forum were also similarly skeptical of REITS.

If one had bought CMT (the precursor to CICT) at IPO around end 2002 and held it all the way to now (through GFC, merger with CCT to become CICT, covid-19, etc), the CAGR would have been ~15%. Note though that it's IPO was in the aftermath of the dotcom crash with high interest rates and being a pioneer REIT, the asset class was not well understood, so yield at IPO was ~7+% (unheard of nowadays).

Despite multiple EFRs, AEIs and asset turnovers, CICT managed to have relatively impressive DPU growth for 2H +9.4% YoY and FY +6.4% YoY.

It's dpu grew from 7+ c at IPO, and with well executed AEIs and acquisitions, doubling to ~14+ c in 2008 just before GFC. An ill-timed acquisition of Atrium office building just before GFC resulted in >40% gearing and a very dilutive EFR. Dpu plummeted to 9+c and stayed at 9 to 11+ c  until now. The latest H results hopefully mark a clawback to the 12+ c level (though still below the 14+ c peak). Don't mean to suppress your level of impression but just to lend some perspective. (It's somewhat sister REIT, FCT, by comparison has been increasing dpu consistently every year from IPO in 2008 to now.)

But what really looks masterful is the 2 twin deals done recently - announcement of an Hougang Central site development (of the retail component) together with divestment of Bukit Panjang Plaza (BPP) at 10% above Dec2025 valuation. In essence, the REIT manager did many positive things - (a) Extending your capability beyond AEI to development. Higher short term risk for higher future gains. (b) Selling a mature asset (BPP) with inferior locale at lower cap rates, and re-allocate the capital to a new greenfield asset which has twice the NLA (net lettable area) and better connectivity. © By executing them at similar timeframes, it also allay fears of a future (and uncertain) EFR raising.

A previous redevelopment of Funan was also well executed. But one wonders where the income growth went to as the dpu did not increase significantly. Possibly because the 3rd last CEO launched 2 small naked private placements that diluted the dpu overnight. But have not seen such blatant moves thereafter.

[weijian]

I am generally skeptical of REIT as an asset class for an investment. So I have to admit that CICT (and Parkway Life REIT) made my skepticism look silly.

Several eminent and well respected posters in the predecessor to this forum were also similarly skeptical of REITS.

If one had bought CMT (the precursor to CICT) at IPO around end 2002 and held it all the way to now (through GFC, merger with CCT to become CICT, covid-19, etc), the CAGR would have been ~15%. Note though that it's IPO was in the aftermath of the dotcom crash with high interest rates and being a pioneer REIT, the asset class was not well understood, so yield at IPO was ~7+% (unheard of nowadays).

Despite multiple EFRs, AEIs and asset turnovers, CICT managed to have relatively impressive DPU growth for 2H +9.4% YoY and FY +6.4% YoY.

It's dpu grew from 7+ c at IPO, and with well executed AEIs and acquisitions, doubling to ~14+ c in 2008 just before GFC. An ill-timed acquisition of Atrium office building just before GFC resulted in >40% gearing and a very dilutive EFR. Dpu plummeted to 9+c and stayed at 9 to 11+ c  until now. The latest H results hopefully mark a clawback to the 12+ c level (though still below the 14+ c peak). Don't mean to suppress your level of impression but just to lend some perspective. (It's somewhat sister REIT, FCT, by comparison has been increasing dpu consistently every year from IPO in 2008 to now.)

But what really looks masterful is the 2 twin deals done recently - announcement of an Hougang Central site development (of the retail component) together with divestment of Bukit Panjang Plaza (BPP) at 10% above Dec2025 valuation. In essence, the REIT manager did many positive things - (a) Extending your capability beyond AEI to development. Higher short term risk for higher future gains. (b) Selling a mature asset (BPP) with inferior locale at lower cap rates, and re-allocate the capital to a new greenfield asset which has twice the NLA (net lettable area) and better connectivity. © By executing them at similar timeframes, it also allay fears of a future (and uncertain) EFR raising.

A previous redevelopment of Funan was also well executed. But one wonders where the income growth went to as the dpu did not increase significantly. Possibly because the 3rd last CEO launched 2 small naked private placements that diluted the dpu overnight. But have not seen such blatant moves thereafter.

Hi swakoo,

Thanks for generously sharing more about CICT's history because I have been following it in closer detail only in the last few years. Holding investment properties have low ROICs and leverage is what improves the ROE to "respectable levels". The cost of capital needs to be lower than the low ROIC levels and therefore, highly dilutive EFR (equivalent to high cost of equity) and high debt costs are all value destructive.

The skepticism from the predecessor to this forum still has a lot of truth though. That might explain why the "well executed AEI at Funan" didn't translate to "significant" DPU growth. CICT/Parkway Life REIT (and probably FCT) are more exceptions than the rule. But in investment (as in life), we are always on the look out for exceptions.

[EnSabahNur]

I am curious, where the skepticism came from?

For myself, I always saw them as bond-like instruments and hence expect bond-like returns. I focused on the yields, buying when high.

I did not expect capital appreciation to form a big chunk of the gains.

[specuvestor]

During the GFC, Temasek had to inject funds into Capitaland through rights and downstream to the REITS. That's why now there is strict leverage ratio limits

https://www.valuebuddies.com/thread-1928...#pid132185

Many Business Trusts failed as well. So the skepticism was well placed but admittedly CICT was the first SREIT and one of the most well managed REIT. It's arguable whether REIT is bond-like cause bond actually has PAR value at maturity, but as long the structured is well managed with high distribution and request for capital as when required, which is what Graham advocated, I think it is still an asset class to have exposure to.

[weijian]

I am curious, where the skepticism came from?

For myself, I always saw them as bond-like instruments and hence expect bond-like returns. I focused on the yields, buying when high.

I did not expect capital appreciation to form a big chunk of the gains.

Hi EnSabahNur,

First and foremost, I want to clarify that I am generally agnostic to REIT investing, even though I am skeptical of it as an asset class. For the right conditions, I will not allow my initial skepticism to affect the right actions that should be taken (As the facts change, I change my mind).

But I do take issue when you mention "bond-like instruments". Reminds me of "mini-bonds" which were introduced to the Spore public back in mid 2000s. And I would admit minibonds were my 1st attempt at reviewing a prospective investment. A trip down memory lane: I went to a bank branch seeking to talk to a banker who was a few notches well dressed than me. And after asking many questions, I realize it was something else. I didn't know how to call it because it wasn't in the textbooks I self learnt from but it definitely wasn't a bond (post GFC, I learnt it was called CDS or credit default swaps)

So why do I bring up minibonds? Because more than 20years ago, they were marketed as been "bond-like". IMHO, it is not too dissimilar from treating REITs as been bond-like. 

REITs are equity investments and is on the bottom of the capital structure. The first priority of bond investors is always about getting back the money (in addition to the coupon) in the event of a default and the debtor is eventually liquidated. So, if one looks for "bond-like but not bonds" investments, I would argue that anything above the capital structure, eg. perpetual securities or mezzanine debt are actually more "bond like" than REITs.

In my memory, I can recall 2 high yield REITs blew-ups - (1) Eagle Hospitality Trust and then (2) Manulife US REIT. Equity investors got nothing in the former's liquidation. And for the latter, Mgt had recently hinted that investors would get back nothing in the event of a liquidation on current market conditions. These are exceptions but these exceptions have sufficiently demonstrate to me that treating REITs as "bond like" is pretty dangerous.

[swakoo]

I am curious, where the skepticism came from?

My own read of where the skeptics came from then was that they viewed REITs as a vehicle for sponsors to:

1) dump their poor quality assets on to unsuspecting unitholders, using financial engineering (eg. income support, deferred distributions to sponsor stakes, etc) to mask the poor quality

2) earn more and more mgt fees by indiscriminately increasing AUM, letting unitholders bear the risk of acquiring assets which could be of dubious quality

The 25 yrs history show that some of this skepticism was warranted. But there were also some enlightened sponsors who use the vehicle responsibly to recycle their decent assets resulting in a win-win for all.

So as weijian mentioned, there are some exceptions we have to look out for - and this is true not only for REITs but also for stocks and in life. Ditto as specuvestor said, there is a place for REITs, with the right structure.

[swakoo]

Previously, the fear was AI bubble. Then shortage of energy and HBM. Then last week, the chatter was AI disrupting software vendors. And now it's disruption of office real estate. Think the uncertain ways AI play out will create a lot of opportunities for those who can fathom it's evolution.

Office real estate stocks tumble as AI disruption casualties in the stock market grow by the day

[EnSabahNur]

Thanks to everyone who commented. This is certainly a good list of the negatives of REITs

"But I do take issue when you mention "bond-like instruments"."

I think I need to address this. It's my bad for using a very vague term to convey this idea. So I wasn't implying that REITs are like bonds in it's entire form.

I am actually just referring to the idea that:

1) It is should be negatively impacted by rising interest rates, in theory. When rates go up, the cost of debt for REITs rises and price falls.

Many investors like to look at the attractiveness of REITs by comparing dividend yields vs risk-free rates, and some unfortunately, make decisions based heavily on the difference, much like bonds. This pushes REIT prices down when risk free rates go up, as investors demand to be compensated for the risks of holding a REIT

2) There is also an element of "certainty" in that most, if not all, REITs choose to pay out 90% or more of their income. Now this is of course unlike bonds, which are contractually obliged to pay, but I suspect there is this persistent idea that rental income is a steady stream, much like interest payments.

So while there are some similarities between the 2, they are certainly very different instruments.