Highlights From CapitaCommercial Trust’s Latest Quarterly Results

CapitaCommercial Trust

CapitaCommercial Trust (SGX: C61U) (or CCT for short) released its second quarter results on Friday.

The real estate investment trust, which owns commercial real estate such as Capital Tower, Six Battery Road, One George Street, and a major interest in Raffles City Singapore, is part of CapitaLand (SGX: C31), one of the largest real estate companies in this region; both the trust and its parent are constituents of the Straits Times Index (SGX: ^STI).

For the quarter, CCT’s gross revenue was at S$65.8 million, a rise of 3.2% over the previous year. The increase was on the back of higher revenue contribution from all properties except for One George Street.

Net property income went up by 3.5% to S$52 million while distributable income to unitholders was at S$64.1 million, some 7.6% higher compared to a year ago mainly due to lower interest expenses, higher net property income, higher distributable income from Raffles City Singapore, and release of retained tax-exempt income distribution from Quill Capita Trust (QCT). QCT is a commercial REIT listed in Malaysia with a portfolio of 10 commercial properties in the country and is 30% owned by CCT.

CCT’s distribution per unit (DPU) rose 5.3% to 2.18 Singapore cents from 2.07 Singapore cents a year ago. This translates to a distribution yield of 4.9% for CCT, taking into account the latest DPU and the DPU of the previous three quarters.

Mr Kee Teck Koon, Chairman of the Manager of CCT, commented on the latest results:

“CCT has delivered a strong set of results in the first half of 2014, with a higher DPU largely generated from positive rent reversions and savings from lower interest expense. CCT’s balance sheet is robust with a low gearing of 28.8% [compared to 30% seen in the previous quarter]. 80% of our total borrowings are on fixed interest rates which minimises the impact of any interest rate increases. The Trust has debt headroom of S$1.3 billion for investment opportunities, assuming gearing increases from 28.8% to 40.0%.”

As of 30 June 2014, CCT’s portfolio occupancy rate was at 99.4%, above the market occupancy rate of 95.8%. Meanwhile, the total value of the properties under CCT’s stable, excluding its joint-venture interests in Raffles City Singapore and CapitaGreen (more on the latter property is discussed below), is S$4.84 billion. This is an increase of 1.4%, or S$68.9 million, from the total property value seen on 31 December 2013. If the REIT’s 60% interest in Raffles City, 40% interest in CapitaGreen, and other assets were included, its total property value would be worth S$7.3 billion at the end of the quarter, a slight increase of 1.8% from the end of 2013.

The REIT also ended the quarter with a net asset value of S$1.67 per unit after adjusting for distributions to unitholders; there’s been no growth in the trust’s adjusted book value since 31 December 2013.

Coming back to CapitaGreen, a Grade A office tower that’s under development, it’s slated for completion by the end of the year. Once done, it will be an additional source of income for the trust. Currently, the total lease commitments for the building are at 23% of its net lettable area. CCT feels that the new property “should attract continued leasing interest especially given the lack of new office supply in 2015 through to the first half of 2016”.

Capital Tower is currently undergoing asset enhancement initiatives (AEI) and that should all be done by the end of next year. The property has secured 100% committed occupancy as of 30 June 2014. Over at Raffles City Tower, AEI commenced at the end of 2012 and it concluded as scheduled this quarter; the return on investment of 9.3% for the improvement works to the building was higher than the 8.6% that was targeted by CCT’s Manager.

Going forward, office leases which contribute 19% of the REIT’s portfolio gross rental income will be due for renewal next year and this gives potential upside to the REIT’s earnings.

CCT closed at $1.71 on Friday and is trading at a trailing price-to-book ratio of 1.

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