CapitaLand Commercial Trust’s Latest Earnings: What Investors Should Know

CapitaLand Commercial Trust (SGX: C61U), or CCT for short, is a real estate investment trust (REIT) that owns commercial properties in Singapore. Some of the buildings in its portfolio include Capital Tower, Bugis Village and Twenty Anson. It also owns 11% of MRCB-Quill REIT (KLSE: 5123), a commercial REIT listed in Malaysia.

This morning, CCT announced its financial results for the third quarter ended 30 September 2017 (3Q2017). The reporting period was from 1 July 2017 to 30 September 2017.

Here’s a quick rundown on the financial figures from the earnings release:

1. Gross revenue for 3Q2017 slipped 0.4% year-on-year to S$74.1 million. CCT divested One George Street (50% stake), Golden Shoe Car Park and Wilkie Edge from June to September this year. The divestments resulted in marginally lower gross revenue in 3Q2017 compared to 3Q 2016. The impact was partially offset by higher gross revenue from CapitaGreen (three months’ revenue in 3Q2017 versus one month’s revenue one year ago).

2. Net property income (NPI) went up 2.7% to S$58.6 million. This was mainly due to lower operating expenses, such as property tax, that offset the lower revenue.

3. Partly due to a S$3.3 million top-up for the loss of income arising from the divestments of One George Street (50% interest) and Wilkie Edge, distributable income rose 7% to S$73.1 million.

4. The reporting quarter’s distribution per unit (DPU) was at 2.36 Singapore cents, up from 2.30 cents seen a year ago. If DPU were adjusted for the rights issue, it would be 2.02 cents for 3Q2017.

5. The net asset value (NAV) per unit was at S$1.84, as at 30 September 2017. If NAV were adjusted for the completion of Asia Square Tower 2 acquisition and rights issue, it would be S$1.75.

For the nine months ended September 2017, gross revenue grew 20.3% year-on-year to S$251.2 million while NPI rose 23.1% to S$197.5 million. DPU increased 3.4% to 6.92 Singapore cents (adjusted DPU at 6.58 cents).

The committed occupancy rate of the portfolio came in at 98.5%, as of end September 2017. This excludes the occupancy rate of Asia Square Tower 2 as the acquisition will only be completed in November this year. The portfolio occupancy rate was above the market rate’s 92.5%.

In 3Q2017, CCT inked around 170,000 square feet of leases, of which 30% were new leases. All lease renewals for the year are largely completed. Next year, roughly 10% of leases based on committed office net lettable area are due for renewal.

As of 30 September 2017, the trust had an aggregate leverage of 33.9%, an improvement from 2Q2017’s 36%. The average cost of debt stood at 2.7% per annum with interest coverage at 5.1 times. 85% of the REIT’s borrowings are on a fixed rate, which provides certainty of interest expense. The trust has no debt maturing for the rest of the year.

CCT said that the “average monthly market rent for Grade A offices rose by 1.7% quarter-on-quarter to S$9.10 psf [per square foot] in 3Q 2017, an indication that the market rents may have bottomed out”. This is similar to what Keppel REIT (SGX: K71U) noted in its third-quarter earnings release on Tuesday.

However, due to a flow-through of negative rent reversions of leases committed in 2017 and potentially continued negative rent reversions in 2018, lower NPI is expected for the financial year 2018 at some properties in CCT’s current portfolio.

Units of CCT are currently changing hands at S$1.66. This gives a price-to-book ratio of 0.90 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 Sudhan P owns units of CapitaLand Commercial Trust.