Capitaland Commercial Trust REIT Analysis

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Largest Office SREIT in Singapore

Capitaland Commercial Trust (CCT) is the first and largest office SREIT to be listed in Singapore. Since its listing in 2004, CCT’s portfolio of office assets has grown from 7 mixed assets (5 office buildings and 2 car parks) to 10 office buildings as it was able to acquire assets both from its corporate parent (Capitaland) and third party sellers. CCT also has a 17.7% stake in MRCB-Quill REIT, a Malaysian commercial REIT.

Recycling Old Assets for New Assets

In terms of location, most of CCT’s office buildings are located in the traditional CBD area of Raffles Place although the SREIT has recently ventured into the newer Marina Bay area through its acquisition of Asia Square Tower 2. In the area of asset enhancement initiatives (AEIs), unlike its corporate sibling Capitaland Mall Trust, CCT is less active in AEIs mainly because office buildings generally have less scope for significant AEIs. However, CCT has been more active in terms of recycling its office assets by selling some of its older assets and adding new assets with better yield and/or growth potential (e.g. sale of Robinson Point and Starhub Centre). CCT has also been active in redeveloping its carpark assets (Market Street and Golden Shoe carparks) into new office buildings through a partnership with its parent Capitaland.

Cyclical Office Rentals

CCT’s office rentals are generally more cyclical (vs retail rents) due to the office sector reliance on the financial industry as a significant tenant source. And given the fact that financial industry’s fortunes ebb and flow with the economic cycle, this thus results in a more cyclical office rental cycle. Currently, the office rental cycle is starting 2018 on a recovery path, driven by healthy tenant demand and diminishing new office supply. However, investors should take note that one of the emerging new tenant base for Singapore office buildings recently is co-location companies. This posed a double-edged sword to office landlords like CCT as while co-location companies are currently helping to boost office rental demand, they could also result in lower office rental demand in the future by allowing small tenants to share office space (thus removing the need for small tenants to rent their own office space).