Listed on 11 May 2004, CapitaLand Commercial Trust (CCT) is the largest office REIT in Singapore. It owns and derives income from a portfolio of 10 properties worth S$10.6 billion as at 31 December 2018.
I recently received CCT’s latest 2018 annual report. Thus, I decided to write an update of CCT’s latest financial results, its plans to sustain growth in the near future, and its current valuation metrics. Here are 14 things to know about CapitaLand Commercial Trust before you invest.
1. CCT’s portfolio value has grown at an compound annual growth rate (CAGR) of 7.2% over the last 10 years, from S$5.7 billion in 2009 to S$10.6 billion in 2018. This is due to the capital appreciation of its existing properties and acquisition of prime office real estate, particularly over the last five years, including CapitaGreen, Asia Square Tower 2, and Galileo.
2. In 2018, the five largest revenue contributors in CCT’s portfolio accounted for 85.2% of total revenue:
|Property||Revenue (S$ millions)||% of Total Revenue|
|Raffles City Singapore (60% interest)||138.3||24.8%|
|Asia Square Tower 2||105.0||18.8%|
|Six Battery Road||68.9||12.4%|
|CCT’s five other properties||82.7||14.8%|
Source: CapitaLand Commercial Trust annual reports
I will highlight the results of the top five properties below.
3. 60% interest in Raffles City Singapore (RCS): Gross revenue grew 0.3% year-on-year to S$138.3 million in 2018. Net property income (NPI), however, dropped marginally to S$104.9 million in 2018 from S$105.2 million in 2017. Nevertheless, it marks the sixth year where RCS delivered S$135-S$140 million in gross revenue and S$100-S$105 million in NPI a year. As at 31 December 2018, RCS reported a 99.7% and 99.4% in office and retail occupancy rates respectively. Hence, it remains as a main stable source of income for the REIT.
4. Asia Square Tower 2 (AST2): In November 2017, CCT completed its acquisition of AST2 for S$2.15 billion. AST2 is a 46-storey integrated development which consists of Grade A offices and ancillary retail spaces located in the Marina Bay area. In 2018, AST2 contributed S$105.0 million in gross revenue and S$80.0 million in NPI. As at 31 December 2018, AST2 recorded an occupancy rate of 98.1%, an improvement from 90.5% from a year ago.
5. CapitaGreen: Gross revenue increased 1.4% year-on-year to S$91.8 million in 2018, and NPI grew 4.6% to S$73.3 million in 2018. This marks a back-to-back increase since 2016 when CCT fully acquired CapitaGreen after buying the remaining 60% stake from CapitaLand and Mitsubishi Estate for S$393.0 million. As at 31 December 2018, CapitaGreen recorded a 99.7% occupancy rate and remains as a key revenue contributor to the REIT.
6. Capital Tower: Gross revenue fell slightly to S$71.4 million in 2018 from S$72.0 million in 2017. However, the property achieved marginal growth in NPI — from S$54.2 million in 2017 to S$54.8 million in 2018. As at 31 December 2018, Capital Tower recorded a 99.7% in occupancy rate, which has been above 99% every year since 2006.
7. Six Battery Road: Gross revenue increased 0.7% year-on-year to S$68.9 million in 2018, and NPI grew 2.4% to S$55.1 million in 2018. The property has maintained steady gross revenues at S$65-70 million and NPI at S$50-55 million over the last five years. As at 31 December 2018, it had a 100% occupancy rate.
8. Overall, CCT has achieved a CAGR of 3.7% in gross revenues over the last 10 years, from S$403.3 million in 2009 to S$557.4 million in 2018. This is mainly due to slow but steady growth in gross revenues from Capital Tower, RCS, and Six Battery Road, and the injection of revenues from CapitaGreen and Asia Square Tower 2 after their acquisitions. Likewise, CCT’s distributable income grew by a CAGR of 5.5%, from S$198.5 million in 2009 to S$321.7 million in 2018. Distribution per unit (DPU) increased from 7.06 cents in 2009 to 8.70 cents in 2018.
9. CCT’s net asset value (NAV) per unit has grown by a CAGR of 3.1% over the last 10 years, from S$1.37 in 2009 to S$1.80 in 2018. As at 31 December 2018, CCT has total gross debt of S$3.90 billion with a gearing ratio of 34.9%. CCT’s average cost of debt is 2.6% per annum and 92% of its debt is based on fixed interest rates. Presently, CCT has a credit rating at ‘BBB+ with stable outlook’ from Standard & Poor’s.
10. As at 31 December 2018, CCT has a portfolio occupancy rate of 99.4% and a WALE of 5.8 years. Based on net lettable area, 24% of retail leases are due to expire in 2019 with half already committed to renewing their leases. 31% of total leases will only expire beginning in year 2022 and beyond, adding to CCT’s income visibility.
11. In June 2018, CCT acquired a 94.9% interest in Galileo, a prime freehold 38-storey commercial building located in Frankfurt’s CBD, for S$569.5 million. The property is CCT’s first foray into Europe and is currently leased to Commerzbank AG – Germany’s second-largest listed bank — until year 2029. Moving forward, Galileo will contribute its first full financial year of results in 2019.
12. CCT is on track to complete the redevelopment of Golden Shoe Car Park — now known as CapitaSpring – in 1H 2021. The project is estimated to cost S$1.82 billion and jointly developed by CCT, CapitaLand, and Mitsubishi Estate whose stakes are 45%, 45%, and 10% respectively. Similar to CapitaGreen, CCT has a call option to acquire the remaining 55% stake within five years of CapitaSpring obtaining its temporary occupancy permit. In April 2018, CapitaSpring secured an anchor tenant, JP Morgan, which will occupy 24% of the building’s net lettable area.
As at 25 March 2018, CCT is trading at S$1.92 a unit. Therefore…
13. P/B ratio: As at 31 December 2018, CCT has net assets per unit of S$1.80. Hence, its current P/B ratio is 1.07, which is significantly above its 10-year average of 0.92.
14. Dividend yield: In 2018, CCT paid 8.70 cents in DPU. Thus, its current dividend yield is 4.53%, which is considerably below its 10-year average of 5.56%.
The fifth perspective
CapitaLand Commercial Trust has a track record of delivering rather steady growth in revenue, net property income, and DPU over the last 10 years. Moving forward, Galileo and CapitaSpring will act as considerable growth drivers in the near future for CCT.
Based on its valuation, CCT looks rather expensive at this point as it’s trading noticeably above its 10-year average P/B ratio. Its dividend yield is also among the lowest when compared to other Singapore REITs.