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

CapitaLand Commercial Trust (SGX: C61U) is Singapore’s first and largest commercial real estate investment trust (REIT). Currently, its portfolio comprises 10 prime office properties in Singapore, and one in Frankfurt, Germany.

Before the stock market opened today, the REIT announced its financial results for the second quarter of 2018.

Gross revenue for the quarter grew 12% year-on-year to S$98.0 million. The increase was primarily due to the contribution from Asia Square Tower 2 (acquired on November 2017), which more than offset the loss in income from the divestments of One George Street, Golden Shoe Car Park, and Wilkie Edge last year. The Frankfurt property, Gallileo, which was acquired by the REIT on 18 June 2018, and CapitaGreen’s better performance, also contributed to the revenue growth.

Net property income, similarly, climbed by 12.5% from S$69.1 million a year ago to S$77.7 million. Meanwhile, distributable income increased by 14.3% to S$79.4 million. Despite the higher distributable income, CapitaLand Commercial Trust’s distribution per unit (DPU) fell by 4% to 2.16 Singapore cents. The decline was mostly due to an enlarged unit base following the REIT’s equity placement to partly fund the Gallileo acquisition.

As at 30 June 2018, the REIT had a gearing ratio of 37.9% (same as 2018’s first quarter), an average cost of debt of 2.8% (it was 2.7% in the first quarter) and an interest cover of 5.3 times (5.1 times in the first quarter). All loans for the year have been refinanced. In 2019, 11% of the REIT’s total borrowings are due.

CapitaLand Commercial Trust’s net asset value per unit stood at S$.184 at the end of 2018’s second quarter, an increase from S$1.76 as of 31 March 2018 due to higher property values.

The total portfolio committed occupancy for the REIT came in at 97.8% with the addition of Gallileo. As for the Singapore portfolio, the committed occupancy rate was 97.6%, higher than the 94.1% occupancy rate for the core central business district office market in Singapore. Commerzbank AG, Gallileo’s anchor tenant, is now the REIT’s second-biggest tenant, contributing to 4% of total monthly gross rental income. The top 10 tenants of CapitaLand Commercial Trust contributed to less than 40% of its total monthly gross rental income.

Most of the REIT’s leases due this year have been renewed or committed, with only 2% of leases (based on monthly gross rental income) outstanding. Around 26% of office leases by monthly gross rental income are due next year. With rising market rents in Singapore, the gap between committed and expiring rents for the REIT’s leases will be narrowed further for the rest of the year and in 2019.

The following chart shows how the gap between the 2018 expiring rents and market rents have been narrowing thus far:Source: CapitaLand Commercial Trust 2018 second quarter earnings presentation

Looking ahead, the REIT said that in Singapore, “consultants expect market rents to continue growing in 2019 given limited new supply in Singapore Central Business District.” As for Germany, it commented:

“Frankfurt’s prime office rent market has been resilient through property cycles. With the relatively low new supply completing in 2018 and 2019, along with good pre-letting levels, the prime office rents in the city should be well-supported and expected to grow.”

CapitaLand Commercial Trust’s units are now changing hands at S$1.76 apiece, translating to a price-to-book ratio of 0.96 and a trailing distribution yield of 4.8%.

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