Friday, May 13, 2016

Recent Action - Capitaland Commercial Trust (CCT)

My last coverage for CCT was done back in Jan when I reviewed their FY15 results. You can view them here.

On Friday, the market went down more and I managed to pick up more CCT at a price of $1.38 for 7,000 shares. My first buy for CCT was at an average price of $1.33, so this is another average up decision. Together with the existing holding, I have now hold 15,000 shares of CCT in my portfolio.

As much as we've been hearing about the weak outlook of the office sector, especially for Grade A offices in the CBD area as a result of oversupply and weak economy, CCT continues to defy the odds by having a committed occupancy of 98.1% for Q1 2016. One only has to look at their past records since inception to understand how well these reits are managed.

Of course, the rental itself is the key variable factor that is going to swing, but that's like any other business. They undergo a cycle of boom and gloom but they'll always come back when the economy picks up.

In Q1, rental rate dipped about 4.8% to $9.90 and we can expect things to come down even more, with the GFC support of $8 probably the bottom in the mid term, given that the grade B rental rate are holding up better these days at about $7.

The Reit has one of the lowest gearing at 30% amongst all other Reits at a net property yield of around 3.8% so if they gear this up further, we can expect the dividend yield to inch closer to the 7% like Keppel Reit, who has above 40% gearing.

There is a potential acquisition pipeline to acquire the rest of the Capitagreen by 2017 so I think we should be seeing some corporate movement pretty shortly. My take is perhaps they will fund the acquisition via borrowings and placement. I don't think they require a lot of funds to do the rights issue at this point.

To me, this is a good opportunity to own a well managed blue chip reit giving investors a 6.2% levered yield at 30% gearing while awaiting for the sector to recover. I think this has the potential to be a strong long term yield play + capital gain.

*Vested with 15,000 shares of CCT as of writing.


  1. Replies
    1. Hi Felix

      I won't be doing the 1st Quarter because a fellow friend and blogger has done so extensively and I believe I have nothing more to add to the 1st quarter loss performance.

      Having said that, the loss is a bad one as their GPM dropped quite a bit in Q1 so this should be the start of a long term pain for investors for those who are holding. We'll have to wait and see if the margins can come back in the mid to long term while they have to cut their work out for their overhead when their HQ is ready.

  2. Hi B,

    What's levered yield? Could you kindly explain? Thanks.


    1. Hi WK

      Levered yield is simply the dividend yield that investors get after taking into account the borrowings they have on their books. In other words, it boosts the dividend yield on the overall portfolio as the gearing goes up.

  3. 30% gearing? That's amazing which means they have more room for expansion.

    1. Hi SR

      Pretty unlikely they will gear up too much as the management wants to keep it rather low based on past practice. But rightfully so, they can gear up as much as how much the MAS allowed them to do :)

  4. Using CCT presentation, you will notice that at Dec 13, CCT's average rent was $8.13 psf while the average market rental then was $10 psf. On Dec 12, CCT was $7.64 psf while market rentals were at $9.55 psf.

    "rental rate dipped about 4.8% to $9.90 and we can expect things to come down even more, with the GFC support of $8 probably the bottom in the mid term", using that as a guage, if average market rentals fall to $8, won't it mean CCT's market rental could be at $6.60 psf?

    1. Hi Choon Yuan

      Thanks for your observations.

      Yes you are right, anything of that is possible but you have to remember they have divested some of the non-performing properties not too long ago so I believe what they have in their current portfolio are the better Grade A assets.

      My office is currently in the CBD area and I am in charge of the renewal process. If ever either Capitagreen or Raffles office goes to $6.60, I'll go to accede to move my office right away :)

  5. hi b,im a budding investor in my twenties,im wondering is singapore a nice place to invest in despite its minuscule size since it ranks highly in the crony capitalism index?singapore ranks 4th highest in the world in crony kinda leaning more towards US because of its sheer massive size in the tens of trillions,and the fact it attracts trillions of investments from all over the world and that helps push the market up.....and singapore market's performance is kinda wonky and underwhelming and its kinda vulnerable to many external factors like china's market,asian markets and also the US market.but i also kinda like the idea of owning some local dividend s chips,and reading ur analysis of various companies im pretty impressed.since Capitaland is one of the obvious choice for crony capitalism,since its not only a well managed company,its also one of PAP's darlings,and probably access to many of the best contracts,deals and clienteles......and deep endless daddy's pockets from Temasek Holdings should things go south or the economy tanks....i mean 98 percent occupancy rate?wow!!another good choice would be keppel reit.anything related to business and the Singapore government has to be good,im not saying PAP are that good at business,they have more than their fair share of flops but when u have deep endless pockets,can pump a billion into a "private" public transport company,purchase 900 mil worth of fighter plane upgrades,another couple billion of helicopter carriers multi mission rescue ships and pay 1.9 billion to help build another country's (australia) defense infrastruture and number 4 ranking in crony capitalism.....shit u have to be a fool not to invest in singapore.

    im planning on purchasing Capitacommercial trust,first reit,ho bee land and china merchant pacific soon,is that good?i have no idea what im doing but ill keep reading ur blog posts over and over again and some other blogs to tru to better understand my purchases.

  6. Well, it’s a nice one, I have been looking for. Thanks for sharing such informative stuff.

    Russ Horn Tradeonix

  7. hi B,are u sure its safe or good value to buy CCT now?it seems like rental rates have fallen to almost 2008 financial crisis levels but the share price is nowhere as low.haiz,its so much better when people are dumping shares and irrationally driving stock market down to ridiculous prices when the company fundamentals hasnt changed much.if only 2008 will come again.

  8. When rates increase, REITs will fall off the cliff. Sell now before it is too late.