CapitaLand Limited Has An Asset Enhancement Initiative That Could Benefit Two Of Its REITs

CapitaLand Limited (SGX: C31) is one of the largest property companies listed in Singapore. It is also the sponsor of many of the largest REITs listed here.

The company had recently started an asset enhancement initiative (AEI) at Raffles City Shopping Centre. This development could benefit two of CapitaLand’s REITs.

Raffles City Shopping Centre is currently co-owned by CapitaLand Mall Trust (SGX: C38U), with a 40% stake, and CapitaLand Commercial Trust (SGX: C61U), with a 60% stake. The  S$54.0 million AEI started in the third-quarter of 2016 and would last till the second-quarter of 2018.

The upgrading includes a renovation of the property’s main entrance, the refurbishing of the mall’s interiors and lift lobbies, and a complete revamp of the Central Atrium at the third level of the mall.

Just prior to the AEI, Raffles City Singapore ­– which houses Raffles City Shopping Centre – had a gross floor area of 3.5 million square feet and a net lettable area of 804,709 sq ft. Of the net lettable area, the property had 423,442 sq ft of retail space and 381,267 sq ft of office space.

Raffles City Singapore is valued at S$3.1 billion as of 30 June 2016. Although the AEI’s dollar amount is not very significant in comparison, it is still interesting to see an improvement that could benefit two REITs at the same time. The AEI could potentially increase the valuation of Raffles City Singapore, thereby pushing up the book values of both CapitaLand Mall Trust and CapitaLand Commercial Trust.

Moreover, if Raffles City Singapore is refurbished, the attractiveness of the property could increase, resulting in higher rental income from its tenants. Again, the higher rent could benefit both REITs.

At the moment, CapitaLand Mall Trust is trading at 1.1 times its tangible book value and offers a 5.6% distribution yield. Meanwhile, CapitaLand Commercial Trust is trading at 0.9 times its tangible book value and offers a 5.7% distribution yield.

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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 Stanley Lim doesn’t own shares in any companies mentioned.