CapitaCommercial Trust’s Second Quarter Results: Fatter Distributions

Capitacommercial logo CapitaCommerical Trust (SGX: C61U), a real estate investment trust focused on commercial buildings that is managed by real-estate company CapitaLand (SGX: C31), released its second quarter results this morning. The REIT had posted a 1.8% year-on-year increase in quarterly revenue to S$97.5m. Meanwhile, net property income for the quarter had slipped slightly by 0.5% to S$74.9m, as compared to last year’s results.

But even as CCT’s net property income fell, investors will be happy to note a 0.5% year-on-year increase to 2.07 cents from 2.06 cents for the REIT’s distribution per unit for the second quarter.

With the headline numbers out of the way, let’s take a look at the REIT’s operations.

CCT’s growth in top-line was a result of higher contributions from most of the properties under its portfolio, with the exception of Capital Tower. But, the growth in its top-line was countered by an increase in property taxes, marketing expenses and maintenance costs, which ultimately dragged its net property income down a little.

Investors will likely be interested to know that the investment properties owned by CCT were deemed to have increased in value by S$85.3m to S$6,483.2m in total. The increase in property-valuation and the repayment of S$50m worth of debt had helped to increase the net-asset value (NAV) of CCT’s units to S$1.69 as compared to S$1.66 from a year ago.

The balance sheet for CCT looks healthy, as Kee Teck Koon, Chairman of the REIT’s manager, commented, “CCT’s balance sheet is robust with a low gearing of 28.9% and an average cost of debt at 2.8% per annum. 76% of our total borrowings are on fixed interest rates, thereby minimising the impact of any interest rate increases.

While this proportion of fixed-rate borrowings is within our target range, we will closely monitor the interest rate environment and make the appropriate adjustments as and when required to mitigate our interest exposure risk.”

For some future outlook, CCT’s management expects lower rental coming from its One George Street property over the next 12 months. The One George Street property had a Deed of Yield Protection in place that ceased on 10 July 2013 and as a result of lower market rental rates, management’s expecting lower rents from it.

That said, management also sees some better news-ahead stemming from positive rent reversions (a process where rental rates are “revised” – hence the term, reversion – to adjust to market conditions) from other properties as well as the completion of upgrading work done on the REIT’s Six Battery Road property.

Asset enhancement works on Capital Tower are also slated to start by the end of this year and CCT’s management is already on the ball in finding occupants for vacant spaces in the property, which if successful, will greatly improve Capital Tower’s occupancy rate.

The market seems ambivalent toward CCT’s results given that its unit’s price is only 0.7% lower at $1.49 at the time of writing (11:40am). At the current price, units of CCT are selling for a Price-to-NAV of 0.9 and a distribution yield of 5.4% based on its distributions for the last four quarters.

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