Capitaland Commercial Trust’s Latest Earnings: Distribution Grew, But So Did Debt

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

As a quick background, 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.

At the local front, the REIT has ownership over properties such as Capital TowerSix Battery Road, and One George Street. It also has partial stakes in Raffles City Singapore and CapitaGreen as well as a 17.7% stake in Quill Capita Trust in Malaysia.

You can learn more about CapitaLand Commercial Trust in here and here or catch up on the REIT’s results for the last quarter here.

Financial highlights

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

  1. Gross revenue was $74.4 million in the reporting quarter, up 8.9% from the same quarter a year ago.
  2. Net property income (NPI) grew along with the top-line, registering an 8.3% year-on-year increase to $57 million.
  3. Distribution per unit (DPU) for the reporting quarter was 2.30 cents, up 7.5% from the 2.14 cents reported in 2015’s third-quarter.
  4. As of 30 September 2016, the REIT’s deposited properties are valued at $8.7 billion. The REIT ended the reporting quarter with an adjusted net asset value per unit of $1.72, unchanged from a year ago.

Beyond these, Foolish investors might want to keep an eye on a 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:

2016-10-19 CapitaLand Commercial Trust Debt Table
Source: Capitaland Commercial Trust’s earnings presentations

It appears that the REIT’s DPU growth has come at a price: More debt. CapitaLand Commercial Trust’s total borrowings has increased to $3.3 billion from $2.3 billion a year ago – the effect of that is a higher gearing, lower interest cover, slightly higher average cost of debt, and a lower proportion of unencumbered assets.

The REIT has completed the refinancing of its borrowings that are due this year. In 2017 and 2018, only $700 million (or 21% of total borrowings) will be due.

Operational highlights and a future outlook

Capitaland Commercial Trust ended the reporting quarter with a committed occupancy of 97.4%, a bump up from the 96.4% recorded in the same quarter a year ago. The REIT’s latest committed occupancy level is also higher than the market’s occupancy of 95.9%.

The weighted average lease term to expiry for CapitaLand Commercial Trust’s portfolio was 6.8 years at the end of September 2016.

Elsewhere, CapitaLand Commercial Trust is seeking approval to redevelop the Golden Shoe Car Park. Lynette Leong, the chief executive of the REIT’s manager, had added these comments:

“We are constantly seeking value-creation opportunities in line with our portfolio reconstitution strategy, with a view to generating higher returns for CCT’s unitholders. In December 2014, we successfully completed the redevelopment of Market Street Car Park into an iconic, premium Grade A office tower now known as CapitaGreen.

We are proud that this award-winning and environmentally-sustainable building has enhanced the skyline of Singapore’s CBD and is home to a prestigious list of companies.”

The proposed redevelopment of Golden Shoe Car Park will be another opportunity for us to catalyse sustainable value for CCT.”

In CapitaLand Commercial Trust’s earnings release, the REIT also shared some numbers on the latest developments in the office market within Singapore’s Core Central Business District.

Occupancy rates there “registered a moderate increase to 95.9%” in the third-quarter of 2016 “despite the completion of a new office development in the quarter.” That said, rents had “eased by 2.1% quarter-on-quarter to S$9.3 per square feet, compared with the rate of decline of 4.0% in the previous quarter.”

CapitaLand Commercial Trust traded at $1.57 at the open today. This translates to a historical price-to-book ratio of 0.91 and a trailing distribution yield of 5.8%.

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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.