CapitaLand Commercial Trust (SGX: C61U) is Singapore’s largest commercial real estate investment trust (REIT) with a portfolio of properties in Singapore and Germany. The REIT just announced its financial results for the second quarter ended 30 June 2019 (Q2 2019). Here are three things from its earnings which really stood out for me.
Growth in distribution per unit
CapitaLand Commercial Trust’s gross revenue for the reporting period rose 3% year on year to S$101.0 million. The better performance was mainly due to the acquisition of Gallileo in Germany and higher revenue from 21 Collyer Quay, Asia Square Tower 2, and Capital Tower. However, these were offset by Twenty Anson’s sale, and lower revenue from Bugis Village and Six Battery Road.
Due to a larger increase in property operating expenses of 11.5%, net property income grew by a smaller amount – 0.8% – to S$78.4 million. Meanwhile, distributable income grew 3.8% to S$82.4 million, which includes a tax-exempt income of S$3.9 million; distribution per unit (DPU) climbed 1.9% to 2.20 Singapore cents, up from 2.16 Singapore cents the year prior.Source: CapitaLand Commercial Trust Q2 2019 earnings presentation
Stable balance sheet
The commercial REIT ended Q2 2019 with a gearing ratio of 34.8%, down from Q2 2018’s figure of 37.9%. Also, when compared with Q1 2019, the aggregate leverage also fell from 35.2%. The average cost of debt and interest coverage were stable at 2.5% and around 6 times, respectively. All of these metrics point to a strong balance sheet.
CapitaLand Commercial Trust’s gearing ratio could go up in future to fund asset enhancement initiatives (AEIs) of two of its Singapore properties and for an acquisition of another building in Germany.
Future plans in motion
Kevin Chee, chief executive of the REIT’s manager, announced new moves by the REIT to position itself better for the future:
“As part of our proactive management of existing operational assets, we plan to commence refurbishment and asset repositioning of 21 Collyer Quay and Six Battery Road respectively in 2020. We also announced CCT’s proposed acquisition of a 94.9% stake in Main Airport Center in Frankfurt, Germany, for EUR 251.5 million (about S$387.1 million) at an initial net property income yield of 4.0%. Depending on the funding structure and on a pro forma basis, the acquisition is expected to be accretive to 1H 2019 DPU by 1.0% to 2.5%. As the proposed acquisition is an interested party transaction, it will be subject to independent unitholders’ approval, expected in September 2019.”
The following shows how the different assets will contribute to CapitaLand Commercial Trust in the next few years:Source: CapitaLand Commercial Trust Q2 2019 earnings presentation
It’s pleasing to see that CapitaLand Commercial Trust’s manager is proactive in looking to deliver higher DPU for unitholders. I’m confident that with the AEIs and acquisition, CapitaLand Commercial Trust’s portfolio will remain attractive in the years to come. At its current unit price of S$2.17, CapitaLand Commercial Trust has a price-to-book ratio of 1.2 and a distribution yield of 4.1%.
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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.