The Motley Fool

Here’s CapitaLand Commercial Trust’s Future Growth Plans

CapitaLand Commercial Trust (SGX: C61U) is Singapore’s largest commercial real estate investment trust (REIT). Its portfolio currently comprises of nine office properties in Singapore and a commercial property overseas.

The commercial REIT released its annual report for the financial year ended 31 December 2018 recently. I took a read to find out how the REIT plans to grow its business in the coming years. Here’s what I found out.

Towering in Singapore

In its home market of Singapore, CapitaLand Commercial Trust’s 51-storey integrated development, CapitaSpring, located at Market Street is on track for completion in the first half of 2021. The building, coming in at a height of 280 metres, would be on par with the tallest buildings in Raffles Place.

CapitaLand Commercial Trust has a 45% stake in the skyscraper, with its sponsor, CapitaLand Limited (SGX: C31), having another 45% share and Mitsubishi Estate holding the remaining 10%. Over a longer-term horizon, CapitaLand Commercial Trust has the option to acquire the remaining 55% of CapitaSpring’s commercial space. The call option is exercisable within five years after obtaining the development’s temporary occupation permit.

CapitaSpring’s strong appeal has already caught the eye of J.P. Morgan, a global banking and financial services provider. The company is poised to be the development’s first anchor office tenant, taking up close to a quarter of its net lettable area. J.P. Morgan has been CapitaLand Commercial Trust’s tenant since 2001.

Recovering market rents in Singapore

After falling from a peak in 2015, Singapore’s office rental rates stabilised in early-2017, and have been on an uptrend since then. There is room for the office rentals to grow further for the rest of this year, allowing further upside for the REIT’s earnings.

In the annual report’s Message to Unitholders, the REIT manager’s chairman Soo Kok Leng and chief executive Kevin Chee explained:

“Singapore’s average monthly Grade A office rent has risen by 14.9% from S$9.40 per sq ft [square foot] as at end 2017 to S$10.80 per sq ft as at end 2018 according to CBRE. Property consultants expect Grade A office rentals to grow by 8% to 10% in 2019 given the limited supply pipeline in Singapore’s CBD [Central Business District]. This will close the gap between expiring and new and renewal rents to be committed for leases expiring in 2019 and drive more positive rental reversions for CCT [CapitaLand Commercial Trust] in the year ahead.”

This is yet another positive news for CapitaLand Commercial Trust unitholders.

Expanding beyond Singapore

CapitaLand Commercial Trust has grown over the years to become the largest office landlord in Singapore’s CBD. To expand further, the REIT forayed overseas in 2018. During the year, it acquired a property called Gallileo in Frankfurt, Germany. The building is freehold in nature and is located in the heart of Frankfurt’s prime business district.

The purchase of CapitaLand Commercial Trust’s first property outside of Singapore was a strategic move to deliver long-term sustainable distribution growth to the REIT’s unitholders.

The REIT manager’s leaders gave some colour on the REIT’s expansion overseas:

“The acquisition of a 94.9% interest in Gallileo in Frankfurt, Germany for an agreed property value of EUR337.8 million (approximately S$531.3 million) and at a net property income yield of 4.0% was a strategic move by CCT to deliver on its promise to create sustainable, long-term value for its Unitholders.”

The duo added:

“With the inclusion of Gallileo, CCT’s portfolio property value has increased to S$10.6 billion as at 31 December 2018 from S$9.9 billion a year ago, with a 5% exposure to Germany. CCT looks to allocate up to 20% of our portfolio property value overseas while remaining predominantly focused in Singapore.”

CapitaLand Limited holds the remaining 5.1% stake.

The Foolish takeaway

From 2014 to 2018, CapitaLand Commercial Trust’s distributable income has grown from S$249.2 million to S$321.7 million. With prudent management and decent growth prospects, I feel there is room for distributable income to expand further in the coming years. At CapitaLand Commercial Trust’s unit price of S$1.96 at the time of writing, it has a price-to-book ratio of 1.1 and a distribution yield of 4.4%.

Meanwhile, there are 28 surprising and important things we think every Singaporean investor should know—and we’ve laid them all out in The Motley Fool Singapore’s new e-book. Packed with information and insights, we believe this book will help you be a better, smarter investor. You can download the full e-book FREE of charge—simply click here now to claim your copy.

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 recommendations on CapitaLand Commercial Trust and CapitaLand Limited. Motley Fool Singapore contributor Sudhan P owns units in CapitaLand Commercial Trust.