CapitaCommercial Trust’s Latest Earnings Show a Continuation of Its Slow and Steady Growth

CapitaCommercial Trust (SGX: C61U) had announced its full-year earnings for 2014 earlier today and this is what investors need to know about it.

The trust, which is one of the largest real estate investment trusts in Singapore, is sponsored and managed by real estate juggernaut CapitaLand Limited (SGX: C31). In fact, CapitaCommercial Trust can be considered to be the commercial real estate arm for CapitaLand.

As of 31 December 2014, the value of the trust’s total portfolio stood at S$7.385 billion. CapitaCommercial Trust mostly owns commercial properties and counts buildings like Capital Tower, HSBC Building, and Twenty Anson under its umbrella.

With these as a backdrop, let’s dig into the trust’s latest earnings release.

The financials

When it comes to REITs, one major area of focus for investors would be the distribution per unit (DPU). On that front, CapitaCommercial Trust did not disappoint. For FY2014, the REIT managed to grow its DPU for the whole of 2014 by 3.9% to 8.46 cents compared to a year ago.

In 2014, CapitaCommercial Trust experienced a 4.4% increase in gross revenue to S$262.6 million which subsequently led to a 4.1% uptick in net property income to S$205.2 million. As a result of higher net property income and lower interest expenses, the REIT managed to clock a 6.4% increase in distributable income to S$249.2 million – this is what ultimately resulted in the REIT’s DPU growth.

Another important measure of a REIT’s economic value is its net asset value (NAV) per unit and CapitaCommercial Trust has also managed to improve in that area. The REIT’s adjusted NAV per unit had increased by 2.4% from S$1.67 at the end of 2013 to S$1.71.

As for its balance sheet, CapitaCommercial Trust’s gearing at the end of 2014 was at 29.3%, unchanged from the end of 2013. The average cost of debt for the REIT had gone down though, from 2.6% in the fourth quarter of 2013 to 2.3%.

It’s worth pointing out that the REIT has ample financing options to take advantage of further growth opportunities given that it has debt headroom of some S$1.3 billion (assuming a gearing level of 40%).

Operational highlights

The trust continues to see its properties being meaningfully occupied; on a portfolio-wide basis (including the recently completed CapitaGreen; more on the development will come shortly), CapitaCommercial Trust’s properties have a 96.8% occupancy rate in the fourth quarter of 2014.

Investors might also be happy to note that the REIT had seen a 5.9% year-on-year increase in monthly average office rental to S$8.61 per square feet for the quarter.

Major developments in 2014

In 2014,  the REIT finally completed its first development project, CapitaGreen Tower.

The newly-developed property received its temporary occupation permit only on mid-December and has already achieved a committed occupancy of 69.3%. CapitaCommercial Trust currently owns 40% of CapitaGreen but has a call option to buy up the remaining 60% stake in the building at market value within 3 years of its completion.

If CapitaCommercial Trust chooses to exercise its option and purchases CapitaGreen in full, it might be a possible new growth avenue for the REIT.

Foolish Summary

CapitaCommercial Trust has been one of the better performing REITs over the past decade. With its distributions reinvested, the trust would have given unitholders a total annualised return of about 13.1% since the start of 2015.

Though it’s not an entirely apples-to-apples comparison, CapitaCommercial Trust’s annualised total return is still far better than the 8.13% figure which the SPDR STI ETF (SGX: ^STI) had achieved for the decade ended 31 December 2014. The SPDR STI ETF is an exchange-traded fund which tracks the Straits Times Index (SGX: ^STI).

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own any company mentioned