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Capitaland Commercial Trust’s Latest Earnings: Revenue Goes Down, but Distribution Inches Up

CapitaLand Commercial Trust  (SGX: C61U) released its fiscal second-quarter earnings report this morning. The reporting period was from 1 April 2016 to 30 June 2016.

CapitaLand Commercial Trust, which is managed by CapitaLand Limited (SGX: C31), is one of the largest commercial real estate investment trusts (REITs) in Singapore by market capitalization.

The REIT’s portfolio consists of 10 commercial properties in Singapore, such as Capital TowerSix Battery Road, Golden Shoe Car Park, Raffles City Singapore, and CapitaGreen. It also has a stake in Malaysia’s Quill Capita Trust.

You can learn more about the REIT in here and here or catch up on the results from its last quarter in here.

Financial highlights

The following is a quick take on CapitaLand Commercial Trust’s latest financial figures:

  1. Gross revenue was $67.6 million in the reporting quarter, down 2.2% from the same quarter a year ago.
  2. Net property income (NPI) fell alongside revenue, registering a 4.5% year–on-year decline to $51.5 million. This compares with the NPI of $53.9 million recorded for the same quarter a year ago.
  3. Distribution per unit (DPU) for the reporting quarter was 2.2 cents, a 0.5% bump up from the 2.19 cents per unit reported in 2015’s second-quarter.
  4. As of 30 June 2016, its portfolio of investment properties have a value of $7.51 billion. The REIT ended the reporting quarter with an adjusted net asset value per unit of $1.72, unchanged from the second-quarter of 2015.

Beyond the above, Foolish investors may also want to keep an eye on the REIT’s debt profile. The debt profile may provide clues on how the REIT is funded and its sensitivity to the interest rate environment. These are summarised for CapitaLand Commercial Trust below:

2016-07-20 CapitaLand Commercial Trust Debt Table
Source: Capitaland Commercial Trust’s earnings presentation

The debt profile for Capitaland Commercial Trust is relatively unchanged from a year ago. But, the interest coverage ratio did decline slightly while the average cost of debt had inched up to 2.5% from 2.4%.

Refinancing for 2016 has been completed. The REIT’s manager also issued $75 million in fixed rate notes (interest rate of 2.77% per year) which will mature in mid-2022; these notes were used to refinance $75 million in bank loans that were supposed to be due in 2020.

Operational highlights

CapitaLand Commercial Trust ended the second-quarter of 2016 with a committed occupancy rate of 97.2% for its portfolio, down from the 98.1% recorded at the end of the previous quarter and the 98.0% seen a year ago. But, this is still better than CBRE’s 95.1% estimate of the occupancy rate for Singapore’s core central business district office market in the second-quarter of 2016.

The REIT also reported a weighted average lease term to expiry of 7.4 years; this is slightly lower than the 7.7 years seen in June 2015.

Meanwhile, CapitaLand Commercial Trust has obtained approval to acquire the rest of CapitaGreen. On the DPU side, CapitaLand Commercial Trust expects to see its DPU in the fourth-quarter of 2016 increase by 2.3% as a result of the acquisition. Lynette Leong, chief executive of the REIT’s manager, had more to share on CapitaGreen in the earnings release:

“We wish to thank our unitholders for their overwhelming approval at the recent Extraordinary General Meeting of our proposed acquisition of the complete interests in CapitaGreen from our joint venture partners.

It endorses our successful portfolio reconstitution strategy of creating sustainable value for CCT [CapitaLand Commercial Trust] through the redevelopment of the former Market Street Car Park into the premier Grade A office building, CapitaGreen.

Upon the acquisition’s completion in the coming months, we will have 100.0% income contribution from CapitaGreen which will boost CCT’s portfolio net property income in 4Q 2016 as well as financial year 2017 and beyond. This will help to mitigate any downside risk to portfolio performance due to the current weak office market.”

On CapitaLand Commercial Trust’s performance in the second-quarter of 2016, Leong said:

“We are pleased that CCT has delivered a higher DPU in 2Q 2016 and for the first half of 2016. Despite the muted macro-economic environment and challenging office market conditions in Singapore, CCT’s portfolio occupancy rate of 97.2% remains higher than market occupancy rate of 95.1% in 2Q 2016.

In 1H 2016, we have successfully renewed or signed new leases with high quality tenants, which included that of the Economic Development Board of Singapore, one of CCT’s top ten tenants. This leaves only 4% of office leases to be renewed this year and 10% of office leases due in 2017, as we proactively retain tenants and attract new ones.”

A future outlook

The REIT also provided a brief outlook in the earnings release for Singapore’s CBD Office Market:

“The Singapore office market continued to see declines in occupancy and rental rates given the impending completion of above-average new office supply in the Core Central Business District (CBD).

Singapore’s Core CBD occupancy rate was unchanged at 95.1% in 2Q 2016 with a pick-up in leasing activity, but average monthly Grade A office market rent declined by 4% in the quarter to S$9.50 per square foot. The y-o-y [year-on-year] decline was 15.9%. Market vacancy rate is expected to rise in the short term, with the completion of new supply over the next six to nine months.”

CapitaLand Commercial Trust’s units traded at a price of $1.55 each at the opening gong today. This translates to a historical price-to-book ratio of 0.9 and a trailing distribution yield of 5.6%.

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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.