5 things I learned from the 2020 CapitaLand Commercial Trust AGM

CapitaLand Commercial Trust (CCT) is a SGX-listed REIT with a portfolio comprising 10 prime commercial properties in Singapore and Germany. CCT’s eight Singapore properties now account for 92% of the Trust’s portfolio property value, while the two German properties make up the remaining 8%.

COVID-19 has made apparent the possibility of remote working, which has raised questions about the future of a centralised, physical office space. With 10 office buildings in its portfolio, I wanted to find out how CCT viewed this potential paradigm shift in the future of the office space.

Hence, I attended CCT’s 2020 virtual AGM to find out more, but I felt that the AGM was too brief to address important points regarding CCT’s post-pandemic future. Nevertheless, here are five things I learned from the 2020 CapitaLand Commercial Trust AGM:

1. CCT’s gross revenue and net property income (NPI) increased by 3.7% and 2.1% year-on-year to S$577.8 million and S$448.0 million respectively in FY2019. The increase in revenue was mainly attributed to the acquisition of Main Airport Center in Frankfurt in September 2019; a full-year contribution from Gallileo (acquired in June 2018); and higher revenue from 21 Collyer Quay, Asia Square Tower 2, and Capital Tower. The increase in revenue was partially offset by the divestment of Twenty Anson, and lower revenue from Six Battery Road and Bugis Village.

CCT’s NPI increased disproportionately lower than its revenue mainly due to a 44% increase in maintenance expenses.

2. As of Q1 2020, CCT’s aggregate leverage stands at 35.5%, well below the new regulatory limit of 50% set by MAS. This gives CCT sufficient debt headroom if it plans to undertake any acquisitions or asset enhancement initiatives.

CCT’s interest coverage stands at a healthy 5.7x and its average cost of debt is at 2.3%. Eighty-five percent of CCT’s borrowings are at fixed rates, ensuring CCT’s debt obligations do not balloon in case interest rates spike. However, we do foresee a low interest rate environment over the next few years due to economic downturns posed by COVID-19.

3. CCT’s rental income might take a hit in 2020. After nine consecutive quarters of positive quarterly rental reversions of its Grade A offices, CCT’s Q1 2020 office rental rate decreased by 0.4%. This was most likely due to the dampening of business sentiments caused by COVID-19.

As of Q4 2019, CCT’s committed occupancies for its Grade A office and overall portfolio were higher than the market occupancy levels. However, in Q1 2020 where the physical and economic impact of Covid-19 was felt in Singapore, CCT’s committed occupancies for its Grade A office and overall portfolio fell below that of the market.

This was probably due to the drastic quarter-on-quarter decrease of 20.2% in the occupancy rate at Six Battery Road (which is one of CCT’s larger properties by revenue contribution).

4. At the AGM, CCT provided rather general plans to deal with COVID-19’s impact on its business. The management said that CCT’s immediate focus is on cost management and cash conservation. About S$25.8 million will go towards supporting its tenants in more vulnerable industry groups. For example, its hospitality tenants will enjoy a 100% property tax rebate and waiver of turnover rent for April.

5. CCT has a diverse tenant mix which provides the group some buffer against COVID-19.

CCT’s tenants come from 13 different sectors — some are ‘essential services’ like companies offering financial services, while others are non-essential services like businesses in the travel and hospitality sector. Businesses badly hit by COVID-19 — including travel, flex-space operators, retail providers, and F&B — contributed to about 25% of CCT’s committed monthly gross rental income as of 31 March 2020.

Source: CapitaLand Commercial Trust 2020 AGM presentation slides

The fifth perspective

CCT’s share price has partly rebounded to S$1.75 from its April low of S$1.33. Based on its last closing price and its FY2019 distribution per unit (DPU) of 8.88 cents, CCT’s dividend yield is currently at 5.1%. However, CCT will face downward pressure on office rents and we don’t expect to see much DPU growth in the near-term.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Dean Goh

Dean has written and published investment articles since he was 18. Investing primarily in the U.S. and Chinese equity markets, he bases his investing decisions on good old Buffett-inspired fundamental analysis. He will be studying Philosophy and Economics at the London School of Economics.

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