Can CapitaCommercial Trust’s Distributions Continue Growing? Part 1

CapitaCommercial Trust  (SGX: C61U) has outperformed the market over the past five plus years with its share price growing around 52.5% from 1 January 2010 to last Friday.

By comparison, the capital gains of the SPDR STI ETF (SGX: ES3) – a proxy for the Straits Times Index (SGX: ^STI) – was 15.1% for the same duration.

CapitalCommercial Trust is one of the largest commercial real estate investment trusts (REIT) in Singapore by market capitalization and it is managed by CapitaCommercial Trust Management Limited, an indirect wholly-owned subsidiary of CapitaLand Limited (SGX: C31).

At the local front, the REIT has ownership over properties such as Capital TowerSix Battery Road, and the Golden Shoe Car Park. It also has partial stakes in Raffles City Singapore, CapitaGreen, and a 30% stake in Quill Capita Trust in Malaysia.

Being a shareholder of a REIT gives you partial ownership to all the real estate that it owns. As per the Monetary Authority of Singapore (MAS), REITs are mandated to distribute at least 90% of its profits as dividends to enjoy tax transparency. I also wrote about a few pointers for picking REITs here.

Over the past five years between 2010 and 2014, CapitalCommercial Trust has distributed steadily increasing dividends totaling almost 40 cents per share.

Financial Year Distribution per unit (Singapore cents)
2010 7.83
2011 7.52
2012 8.04
2013 8.14
2014 8.46

Source: CapitaCommercial Trust’s Earnings Presentation

Although the returns from CapitaCommercial Trust have been towering, as Foolish investors, we should look behind the curtains to understand how sustainable the REIT’s distributions are, and how it can grow.

A closer look

To get a sense of the resilience of CapitaCommercial Trust’s property portfolio, we can look at the gross revenue coming from each property.

CapitaCommercial - 1

Source: CapitaCommercial Trust’s Earnings Report; RCS Trust (60%) refers to CapitaCommercial Trust’s 60% stake in Raffles City Singapore

The financial year for CapitaCommercial Trust coincides with the calendar year. Between 2010 and 2014, gross revenue for the REIT has been roughly flat if we exclude the REIT’s stake in Raffles City Singapore.

CapitaCommercial Trust’s stake in Raffles City Singapore was also reclassified under “share of results from joint ventures” from 1 January 2014 onwards due to an accounting change (Financial Reporting Standards – 111 Joint Arrangements). I’d revisit this topic in the second part of this series.

Coming to the rest of CapitaCommercial Trust’s properties, three of them – namely Capital Tower, Six Battery Road and One George Street – are particularly important as they collectively contributed to 69% of the REIT’s total revenue in 2014.

Interestingly, gross revenue for Six Battery Road and One George Street have decreased in the past five years and was offset by gross revenue increases under the “Other Office Buildings” segment.

2015-02 CCT Slide - 1

Source: CapitaCommercial Trust’s Presentation; CCT denotes CapitaCommercial Trust

Foolish investors should note that commercial properties tend to be sensitive towards changing economic winds.

As you can see in the chart above (click for a larger image), CapitaCommercial Trust has managed to keep its occupancy rate above the market average for the most part. But, that does not mean that the REIT has been immune to falling occupancy rates.

Foolish summary

The exercise above is to look at the revenue dynamics for CapitaCommercial Trust alone. As a next step, we should observe if the REIT’s top-line growth trickles down to the bottom-line in order for it to sustain its growth in distributions.

But, that’s for the second part of this series.

CapitaCommercial Trust last traded at S$1.80 last Friday. This translates to a historical price-to-book ratio of 1.05 and a trailing-12-month distribution yield of around 4.7%.

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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 contributor Chin Hui Leong doesn’t own shares in any companies mentioned.