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CapitaLand Commercial Trust’s 2018 First Quarter Earnings: What Investors Should Know

CapitaLand Commercial Trust (SGX: C61U) is Singapore’s first and largest commercial REIT. The REIT’s portfolio of 10 prime commercial properties in Singapore is worth around S$10.7 billion, as at 31 March 2018. Some of the assets it owns are Capital Tower, CapitaGreen, and the newly acquired Asia Square Tower 2.

This morning, CapitaLand Commercial Trust announced its financial results for the first quarter ended 31 March 2018 (1Q 2018). Here’s a quick rundown on the financial figures from the earnings release:

1. Gross revenue for the quarter grew 7.7% year-on-year to S$96.4 million.

2. Net property income (NPI) went up 10.5% to S$77.2 million.

3. Distributable income rose 7.5% to S$76.6 million.

4. The reporting quarter’s distribution per unit (DPU) came in at 2.12 Singapore cents, down from 2.40 Singapore cents seen a year ago.

5. The adjusted net asset value per unit was flat at S$1.74, after adjusting for the latest quarter’s distributable income.

The higher gross revenue and NPI for the quarter were due to higher income from CapitaGreen, Capital Tower and Six Battery Road, and a full quarter contribution from Asia Square Tower 2, which was acquired on 1 November 2017. These were partially offset by lower contributions due to the divestments of One George Street (50% interest), Golden Shoe Car Park and Wilkie Edge in 2017.

Quarterly DPU fell 11.7% to 2.12 Singapore cents, despite the improvement in gross revenue and NPI, mainly due to an enlarged total units base from a rights issue that was undertaken in October 2017. The proceeds from the rights issue were used to acquire Asia Square Tower 2. The latest DPU would be 7.6% higher year-on-year if adjusted for the enlarged total units base.

As at 31 March 2018, the trust had an aggregate leverage of 37.9%, with an average cost of debt at 2.7% per annum. Borrowings due in 2018 were successfully refinanced, and the average term to maturity had been extended from 2.4 years to 3.9 years. The latest interest coverage was 5.1 times, a slight improvement from 4.9 times at the end of last year.

CapitaLand Commercial Trust said that the Singapore authorities had exercised the right to take back Bugis Village on 1 April 2019. Upon the return of the asset, the REIT expects to receive a compensation sum based on S$6.6 million and accrued interest compounded from 1989. Bugis Village accounted for around 2.2% of CCT’s latest NPI and was valued at S$44 million, as at 31 Dec 2017.

The chief executive of the REIT’s manager, Kevin Chee, commented on the latest performance of CapitaLand Commercial Trust:

“We are pleased to maintain a high portfolio committed occupancy rate of 97.3% in 1Q 2018. With a focus on achieving a balance between higher rentals and lower vacancy, we will also leverage the momentum of rising office market rents to manage our lease expiries in the upcoming years. CCT [CapitaLand Commercial Trust] has built a portfolio of quality assets in Singapore and is currently the largest commercial landlord in Singapore’s CBD by net lettable area. The timely acquisition of Asia Square Tower 2 has contributed significantly to CCT’s strong performance this quarter and we will continue to market the remaining vacancy to deliver higher income. To continue delivering sustainable distribution growth, CCT will also look at core assets in select global gateway cities across developed markets, in addition to exploring opportunities in Singapore.”

Looking ahead, the trust said the following:

“Based on data from CBRE Pte. Ltd., Singapore’s Core CBD office occupancy rate increased quarter-on-quarter (q-o-q) by 0.3% to 94.1%. Grade A monthly office market rent was S$9.70 per square foot in 1Q 2018, an increase of 3.2% q-o-q. With higher committed occupancies in the newly completed office buildings and limited new supply in the CBD from 2018 to 2020, market rents are expected to continue to grow steadily over the next few years. In relation to CCT, the potential rise in market rents will narrow the gap between committed and expiring rents for its leases due for renewal in 2018.”

CapitaLand Commercial Trust closed at S$1.82 per unit yesterday, translating to an adjusted price-to-book ratio of 1.05 and a trailing distribution yield of 4.7%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended units of CapitaLand Commercial Trust. Motley Fool Singapore contributor Sudhan P owns units in CapitaLand Commercial Trust.