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CapitaLand Commercial Trust Looks to Sustain Its Distributions As Pressure Mounts on Office Rentals

CapitaLand Commercial Trust (SGX: C61U) is one of Singapore’s largest commercial real estate investment trusts. In recent earnings presentations, the REIT has been cautioning investors that Singapore’s office supply is expected to hit unprecedented levels in 2016.

This is summarised in the slide below prepared by CapitaLand Commercial Trust:

2016-07-20 CapitaLand Commercial Trust Office Supply
Source: CapitaLand Commercial Trust’s earnings presentation

With the huge supply coming online, tenants might have more choices. Hence, office rental rates could come under pressure. In CapitaLand Commercial Trust’s latest earnings briefing, the REIT manager’s chief executive Lynette Leong acknowledged the headwinds:

“We are beginning to see a lot more pressure. I think we have to acknowledge that the headwinds are pretty strong.”

However, Leong also said that CapitaLand Commercial Trust is not looking at rental rates alone. She explained why it is important for the REIT to take a broader view:

“I think it is not just about the rents that we have to look at, we have to manage the other aspects. We have to manage the expenses – and that’s why we feel that the acquisition of CapitaGreen should be able in propping up the DPU.”

Leong was referring to CapitaLand Commercial Trust’s acquisition of the remaining 60% stake in the CapitaGreen building that it does not yet own. The transaction is expected to be completed in the third-quarter this year.

A holistic view

As I had shared above, Leong is taking all the levers into account, including management of costs. Ultimately, CapitaLand Commercial Trust has its eye on the sustainability of its distribution per unit (DPU). Leong said:

“So, we can’t just look at everything in one dimension, we have to see what else can we bring in to ensure the stability of the DPU. That’s really our focus, our bottom-line.”

The headwinds will be challenging for CapitaLand Commercial Trust. Investors will have to see what the next few quarters bring in terms of expenses, rental rates, and ultimately, as Leong notes, CapitaLand Commercial Trust’s DPU.

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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.