CapitaLand Commercial Trust: 8 Quick Things I Learned from its 2015 AGM

CapitaLand Commercial Trust: 8 Quick Things I Learned from its 2015 AGM: "8 Quick Things I Learned from CapitaLand Commercial Trust’s AGM 2015:
There will be an increase in rent whenever the average occupancy rate of the core CBD hits above 95% according to CEO Lynette Leong. Grade A office rental rates in 4Q2015 rose by close to 15% to $11.20 psf. As a result, CCT holders received a higher distribution per unit (+3.9%) and property valuation (+2.4%) due to positive rent reversion.
Lynette Leong also pointed out that strata office sales in the market fetch less than 3.5% in property yield. Investors are better off owning a REIT that nets an average yield of 6%.
Since Jan 2014, CCT adopted a new way of reporting its joint ventures. The old way of reporting used to record joint venture income as revenue (top line), but now CCT captures the distribution income of joint ventures under distributable income (bottom line).
CCT owns 40% of the newly completed office building CapitaGreen and accounted for 8.2% of property valuation in 2014. The building has a registered occupancy rate of 70% and will start to contribute positively to CCT’s overall performance in 2016 as the manager expects tenants to move in the second half of 2015. Assuming the office rental rate is similar to last year’s, unitholders can expect higher distribution income from this property next year onwards.
There is concern about a large supply of office space (about 3.7 million square foot) coming online in 2016 that may depress office rents. Thankfully, CCT is well-prepared and planning to execute these few strategies:
Secure their largest tenants early this year whose leases are expiring next year
Maintain or improve their existing tenant retention rate of 86% (up from 67% in 2013) via asset enhancement initiatives to anticipate the needs of their tenants and stay relevant in the market
Extend leases with their tenants beyond 2016; CapitaGreen’s committed occupancy has leases expiring beyond 2018
Gearing is at 29.3% (click here to check the latest REIT data). With potentially higher interest rates coming, this can be detrimental to a REIT’s performance. Knowing this, CCT has set 83% of their borrowings on fixed rates to mitigate this risk and stretched their loan maturity to 2021.
Assuming a 40% gearing, CCT has debt headroom up to $1.3 billion which would be sufficient to acquire the remaining 60% stake in CapitaGreen building. Lynnette Leong said that the acquisition must be yield accretive before they consider it.
One unitholder sharply pointed out that Raffles City, located directly above City Hall MRT, was under-rented with expiring leases of only $7.88 psf. In response, Lynette Leong mentioned that rents always depend on the market rate at any given point in time and the duration of the lease. In the case of Raffles City, it has a long master lease that was signed long ago."



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