• Home
• Sitemap
• Contact Us

The Manager

Font A A

Our strategy for 2010 was one of portfolio reconstitution to enhance the value of the Trust. This involved the divestment of properties that have reached the optimal stage of their life cycle, and recycling the capital to re-invest in assets which will in turn enhance the quality and value of our portfolio.

Letter to Unitholders

Dear Unitholders,

CapitaCommercial Trust is pleased to report a distributable income of S$221.0 million for FY 2010, a 11.3% increase over last year's S$198.5 million. This translates into a distribution per unit (DPU) of 7.83 cents for FY 2010, which is 10.9% higher than FY 2009 DPU of 7.06 cents.

The year 2010 ended on a positive note for the Singapore office market. Net office demand was 1.6 million square feet for 2010, a sharp upturn from the negative net demand of 0.6 million square feet in 2009. Office rents have been steadily recovering since they reached the trough in the first quarter of 2010.

Fears of office oversupply were quelled by rising demand due to a fast-recovering economy. Office occupancy rate in Singapore improved from 87.0% in the third quarter of 2010 to 87.9% as at end-2010.

At CapitaCommercial Trust, the focus of 2010 on revitalising our assets and portfolio has been pivotal to our continued success and ensuring long-term sustainability. The portfolio reconstitution strategy supported by prudent capital management strategies and effective cost savings measures had resulted in another year of robust performance by the Trust.

Reconstituting Our Portfolio

Our strategy for 2010 was one of portfolio reconstitution to enhance the value of the Trust. This involved the divestment of properties that have reached the optimal stage of their life cycle, and recycling the capital to re-invest in assets which will in turn enhance the quality and value of our portfolio. In line with this, the Trust divested two non-Grade A office buildings, Robinson Point and Starhub Centre, in April and September 2010 respectively. Sold at significant premiums over their book values, these properties yielded total net proceeds of S$578.1 million. Another asset which we are actively evaluating to generate higher value is the redevelopment of Market Street Car Park into a Grade A office tower.

To complement our portfolio and enhance our market position, we continue to source for high quality assets with good locations and specifications or with potential for asset enhancement. We also maintain a disciplined approach in the use of the divestment proceeds.

Refining Our Assets to Create More Value

We embarked on asset enhancement initiatives to create more value for two of our properties in line with our portfolio reconstitution strategy.

The S$92-million refurbishment of Six Battery Road, which began in November 2010, is scheduled to be completed in phases by end-2013 while the building and tenants remain operational with minimal disruption. The upgrading will boost the building's environmental sustainability, technical efficiency and aesthetic appeal while improving the quality and value tenants enjoy at this Grade A office property.

At Raffles City Singapore, the latest phase of enhancements was completed in December 2010 and will generate higher property income in 2011. About 16,000 square feet of additional retail space have been created in basements 1 and 2. Shoppers' traffic to Raffles City Singapore is likely to improve further, as it now has direct access to the newly opened Esplanade MRT station via its basement 2, in addition to the existing City Hall MRT station.

Retaining Our Tenants

We actively engage our tenants and provide high service standards, which have been crucial to our tenant retention strategy. About 920,000 square feet of leases were signed and renewed, representing about 30% of CCT's total portfolio area this year. We continue to concentrate our leasing efforts through pre-commitments or proactive negotiations in line with our space availability and current and projected market conditions.

As at end-2010, committed occupancy rates for the Trust's portfolio and Grade A offices were 99.3% and 99.9% respectively. Our occupancy rates have remained consistently above the market levels.

Redeploying Our Resources

One of the Trust's key strategies is prudent and proactive capital management - to maintain a strong financial position and financial flexibility.

During the year, we raised funds from diverse sources. We also completed all refinancing due in 2010 well ahead of maturities. This included the issue of S$70.0 million medium term notes (MTN) at 3.64% due 2015 and the issue of S$225.0 million unsecured convertible bonds at 2.7% due 2015. Part of the proceeds was used to repurchase S$190.0 million (out of a principal amount of S$370.0 million) of existing convertible bonds with a put option in 2011. We also prepaid a secured term loan of S$142.6 million due in 2012 using part of the property divestment proceeds.

To further enhance financial flexibility, the Trust has increased its multicurrency MTN programme limit from S$1 billion to S$2 billion. In addition, seven of the Trust's properties with a value of about S$2.7 billion no longer form security for our borrowings. Assuming a 50% loan-tovalue ratio, we could potentially borrow up to S$1.3 billion using these assets.

With a strong balance sheet and enhanced financial flexibility, the Trust is well positioned to respond nimbly to growth opportunities. As at 31 December 2010, its gearing was 28.6% (improved from 31.5% last year). In fact, the Trust has sufficient internal resources and debt capacity to seize investment opportunities of up to S$1.6 billion without exceeding the gearing limit of 40%.

The Trust was assigned a long-term global corporate credit rating of 'BBB+' with a stable outlook by Standard & Poor's Rating Services in October. In December, Moody's upgraded the Trust's corporate family rating from Baa2 to Baa1 and its senior unsecured ratings from Baa3 to Baa2, with stable outlook for both ratings.

Looking Ahead

The Singapore economy is expected to expand by 4% to 6% in 2011. We expect growing demand for prime and Grade A offices to continue into 2011. Pre-leasing of new office space scheduled for completion in 2011 has been strong amidst rising rentals, signalling positive momentum in the Singapore office market.

Nonetheless, we need to be cognizant of risks facing the global economy. Among them are possible slower economic growth in the US, uncertainties in the Middle East, and sovereign debt sustainability in the peripheral EU economies. We remain focussed on our business fundamentals as we optimise the value of our assets, leverage on market recoveries and explore new opportunities. Rising office market rents, prudent cost savings and higher incomes from retail and hotel tenants will help to mitigate anticipated decreases in the Trust's 2011 revenue due to its divestments and some negative rent reversions resulting from expiring leases in 2011.

Accolades

As a result of planned enhancements, Six Battery Road was the first operating office building in Singapore to win the Green Mark Platinum award, the highest accolade from the Building and Construction Authority in recognition of the building's best practices in environmental design and performance.

The Trust was also voted "Singapore's Best Mid-Cap Company for 2010" in FinanceAsia's 10th annual poll of Asia's best-managed companies for the second consecutive year, reaffirming investors' and analysts' confidence in our management and corporate governance practices.

Appreciation

We thank Mr Lui Chong Chee, who relinquished his position from the Board of Directors on 1 June 2010, for his invaluable contributions to the Trust. To our staff, tenants and business partners, our heartfelt appreciation for your loyal dedication and support. Last but not least, special thanks to our Unitholders, whose trust has kept us a cut above our competitors.

Richard E. Hale

Chairman

Lynette Leong Chin Yee

Chief Executive Officer