7 Quick Things Investors Should Learn About Capitaland Commercial Trust

CapitaLand Commercial Trust (SGX: C61U) is one of the cool companies and trusts in Singapore that shares webcasts and/or transcripts of their quarterly earnings presentations (the link for CapitaLand Commercial Trust is here).

Capitaland Commercial Trust is one of the largest commercial real estate investment trusts (REIT) in Singapore by market capitalization. It is managed and partially owned by local real estate juggernaut CapitaLand Limited  (SGX: C31).

The REIT is largely focused on Singapore and owns properties such as Capital TowerSix Battery Road, and the Golden Shoe Car Park. It also has partial stakes in Raffles City Singapore and CapitaGreen as well as a 17.7% interest in Quill Capita Trust in Malaysia.

You can read more about CapitaLand Commercial Trust in here and here.

Below are seven useful things I had learned from listening to the webcast for CapitaLand Commercial Trust’s recent fiscal fourth-quarter earnings release:

  1. Lynette Leong, Chief Executive Officer of the REIT’s manager, kicked off the briefing with a summary of the quarter’s results. Among the highlights were the completion of an asset enhancement initiative (AEI) at Capital Tower. Leong noted that the AEI came in lower than its original budget despite its expanded scope. Another highlight was the increase in CapitaGreen’s occupancy rate from about 70% to over 90% over the past 12 months.
  2. As part of her summary, Leong also pointed out CapitaLand Commercial Trust’s low debt gearing of 29.5%. She noted that the REIT has debt headroom of $1.3 billion (assuming a gearing of 40%) for potential growth opportunities. Later on, Leong added that the REIT maintains a debt gearing guideline of 30% to 40% across different economic cycles. The low gearing could be a reflection of the increased risk in the property market. Elsewhere, Leong also cited good progress in refinancing the REIT’s borrowings that are maturing in 2016.
  3. Meanwhile, CapitaLand Commercial Trust also shared a sensitivity analysis on interest rate increases. For every 0.5% hike in interest rates, the REIT will experience a 0.03 cents decrease in its distribution per unit (DPU). The limited impact could be due to a combination of a low gearing ratio and having 84% of loans on fixed rates.
  4. The top ten tenants of the REIT now contribute 35% of gross monthly rental income. Leong noted that the inclusion of CapitaGreen widened the diversity of its tenants, with 28% of the new leases coming from the business consultancy, IT, media, and telecommunications sectors.
  5. Leong also noted that the new supply of office space coming online in 2016 is unprecedented. A total amount of 4.3 million square feet is lumped into the current year, far above the historical average of around 1.2 million square feet per year. She also pointed out that CapitaLand Commercial Trust had deliberately kept the percentage of expiring leases low between 2016 and 2018 through proactive leasing. Leong expects the supply to ease off and subsequently tighten in 2019 to 2020 when there is no new supply planned.
  6. The current Grade A Office Average Market rent is $10.40 per square foot (psf) per month. A comparison was made with the existing rental for four of its major buildings. For 2016, the remaining leases averaged at $9.57 psf per month. This suggests that there may be positive rental upside for renewals.
  7. Leong also reiterated the REIT’s focus in the Singapore property market in the short to medium term.

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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.