3 Negatives From CapitaLand Commercial Trust’s First Quarter Results
CapitaLand Commercial Trust (SGX:C61U), a component stock of the Straits Times Index (SGX: ^STI), is the largest commercial REIT in Singapore. It owns a portfolio of 10 properties in Singapore valued at around S$10.7 billion.
In April, the REIT released its financial results for the first quarter of 2018. Although the headline numbers for the trust were generally positive with revenue, net property income and distributable income all up, there were broader negative aspects that investors should be aware of. Here are three of the negatives worth highlighting.
Distributable income up but DPU down
As mentioned earlier, the trust reported strong growth in revenue during the first quarter of the year. It jumped 7.7% to S$96.4 million from S$89.5 million a year ago. Consequently, both net property income and distributable income rose by 10.5% and 7.5% respectively.
However, due to an enlarged unit base, distribution per unit fell 11.7% to 2.12 Singapore cents from 2.4 Singapore cents in the corresponding period last year. This was because of a rights issue that was used to raise funds for the acquisition of Asia Square Tower 2.
Relatively high gearing ratio
The trust ended the quarter with an aggregate leverage of 37.9%. Even though the gearing ratio is below the 45% regulatory limit, this level of gearing is still one of the highest amongst in REITs and stapled trusts in Singapore.
Furthermore, the REIT recently announced the acquisition of a property in Frankfurt, which will be funded by a mix of equity, raised through a private offering, and debt. The property, which is expected to increase the distribution per unit, will, therefore, further increase the debt load of the REIT and push its gearing ratio up to 39%.
Following this acquisition, the REIT will be dangerously close to the 45% regulatory cap and would most likely find it difficult to make any more debt-funded acquisitions.
Quarter-on-quarter decline in average gross rent per month for the office portfolio
Finally, during the first quarter of 2018, the trust reported a 0.4% decline in gross rent per month. Rental rates were S$9.70 per square foot, down from S$9.74 per square foot.
The Foolish bottom line
The headline numbers do not always paint the whole picture. Investors should continue to monitor the gearing ratio, rental rates and distribution per unit of CapitaLand Commercial Trust in the near future to get a better perspective on the overall business conditions of the REIT.