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ALP REIT INVESTMENT CLUB (9th April 2016)
CapitaLand Commercial Trust (C6IU)
(9th April 2016) close: $1.435
12M-Target price: $1.46
1.) Type of Reit: Commercial real estate industry.
2.) Number of property in the portfolio: 10 buildings located in Singapore’s premier business addresses.
3.) Top 5 properties that generates the highest revenue (Decreasing order): Capital Tower (25.3%), Six Battery Road (24.8%), One George Street (19.1%), Twenty Anson (8.5%), HSBC Building (7.8%).
4.) Challenges: With a slowdown in growth for the global economy and an aforementioned glut in office space supply in Singapore, it may lead to lower demand for office space in Singapore and thus pressure commercial REITs with exposure to the local office market.
In FY16-17, close to 30% of CCT’s office leases will be due for expiry, the majority of which stems from One George Street (7%) and Six Battery Road (10%), where expiring rents are close to or slightly higher than market rents.
5.) Strengths: With gearing the lowest among office S-REITs, we believe there is potential upside to our DPU estimates if CCT triggers the option to purchase the remaining 60% stake in CapitaGreen that it does not own.
6.) Significant events: CapitaLand Commercial is seeking to sell the 23-storey One George Street building in the Raffles Place office district, the person told Bloomberg, asking not to be named as the information is private.
8.) Recommendation:Hold. Two of its largest holdings already contributed 50% of the trust total revenue, a sign that the group might face some concentration risk. One interesting point to take note is that the Trust’s distributable income of S$64.8 million in 1Q 2016 was 3.3% higher than the S$62.7 million achieved in 1Q 2015. This was largely due to higher distributable income from its 40.0% and 60.0% interests in CapitaGreen and Raffles City Singapore respectively. Hence, one might think that the concentration risk will be limited.
Despite headwinds in the Singapore office market, CCT’s portfolio committed occupancy rate of 98.1% in 1Q 2016 remains above market occupancy of 95.1%. Overall, investors would still need to be cautious as the uncertain global economic outlook could affect the trust performance, given that the trust is cyclical in nature, with beta around 0.94.
COMPILED BY: Zong Han
DISCLAMER: Readers should not rely solely on information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.
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