5 Ways CapitaLand Commercial Trust is Adding Value for Unitholders

CapitaLand Commercial Trust  (SGX: C61U) is the first commercial real estate investment trust (REIT) to be listed in Singapore.  

Over the past 12 years since its May 2004 listing, CapitaLand Commercial Trust has grown to become one of the largest commercial REITs in Singapore by market capitalization.

In CapitaLand Commercial Trust’s recent 2016 second-quarter earnings presentation, the chief executive of its manager, Lynette Leong, gave an overview on the REIT’s strategy to add value for unitholders. She focused on this slide during the presentation:

2016-08-30 CapitaLand Commercial Trust Strategy
Source: CapitaLand Commercial Trust’s earnings presentation

Leong first talked about CapitaLand Commercial Trust’s goals:

“So, we have shared this chart since 2010 about a portfolio reconstitution strategy. We believe in growing in a very disciplined and stable fashion so that it does not overburden our balance sheet. And yet, we continue to increase our DPU [distributions per unit].

Our objective is to increase the DPU in a steady and sustainable basis.”

The first approach for the REIT to create value is through organic growth. Leong said:

“Organic growth is one of the things that we do very proactively, in securing high occupancy and minimising lease expiries in the years where there is oversupply.”

Over the years, CapitaLand Commercial Trust has been able to keep the occupancy rates for its portfolio above the market’s average. The next two approaches are about enhancing assets and unlocking value. Leong commented:

“We also have been enhancing our assets through AEI and achieving very creditable ROIs [return on investment]. We are open to divesting assets – we have done that – in 2010 and also divested the Market Street carpark for the redevelopment of CapitaGreen.”

With the divestments come opportunities for redeployment of capital. In line with this, the fourth approach deals with the flexibility the REIT has to seize growth opportunities. Here, Leong talked about putting divestment proceeds back into redevelopment:

“Through the recycling of assets, we have been able to not have to raise equity from the market. As a result of which, we have been able to continue to grow our portfolio.”

Leong appealed to unitholders to be patient and noted that CapitaLand Commercial Trust’s DPU has increased over time. She hopes that the sustainability of her REIT’s DPU might be preferable over a DPU that fluctuates year over year.

The onus is on CapitaLand Commercial Trust to continue growing. The fifth approach is to expand its portfolio of properties. As an example of this, the REIT is in the midst of completing its acquisition of the rest of CapitaGreen that it does not yet own.

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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.