• Home
• Sitemap
• Contact Us

The Manager

Font A A

Letter to Unitholders

Dear Unitholders,

Anticipating future business trends, accelerating execution to seize opportunities, and accentuating our strengths have enabled us to deliver good results.

CapitaCommercial Trust has emerged with resilient results despite a challenging year caused by the severe global economic downturn.

The downturn in the Singapore economy, which affected tenants' business operations, weakened demand for office space and reduced occupancy levels in 2009. Market office rents fell nearly 60% from their peak in the third quarter of 2008.

These turbulent 12 months have been a grim reminder to us of the need to stay vigilant in an ever-changing market environment. Our emphasis on "anticipating future business trends, accelerating execution to seize opportunities, and accentuating our strengths" has enabled us to deliver on our proactive capital and asset management strategies with good results even as we weathered the tough economic conditions.

Strong Financial Position

We refinanced our various debt obligations in 2009 well ahead of their maturity dates. During the year, the Trust raised S$772.7 million through secured bank loans, and the issue of fixed-rate medium term notes.

In view of economic uncertainties and potential asset write-downs, we launched a fully underwritten renounceable 1-for-1 rights issue at S$0.59 per rights unit in mid-2009 which raised S$828.3 million. We were heartened by the market response and the issue was 1.35 times oversubscribed. Of the rights proceeds, S$664.0 million was immediately used to prepay borrowings due later in the year. With the recapitalisation, the Trust strengthened its balance sheet and financial ratios. Gearing was 33.2% on 31 December 2009.

Proactive Asset Management

Also contributing to our good performance is our proactive asset management strategy. Notwithstanding the uncertain outlook for office space in 2009, we achieved above-market occupancy levels for the Trust's property portfolio. As at end-2009, the Trust's portfolio and Grade A offices achieved committed occupancy rates of 94.8% and 98.7% respectively, above the market level of 87.9%.

As a result of our active engagement with tenants, we signed leases including renewals for 1.03 million square feet of net lettable area in 2009, representing approximately 30% of CCT's total portfolio area. A forward lease negotiation strategy with key strategic tenants enabled us to lock-in their renewals ahead of expiry in order to secure certainty of income for the Trust and hedge against further rental rate declines along with the market. Our proactive leasing strategy also resulted in positive rent reversions, contributing to higher gross revenue of S$403.3 million for FY 2009, a 20.3% improvement over S$335.3 million achieved in the previous year.

In an effort to support our tenants during the crisis, we took the initiative to pass on the property tax rebate received from the Government to them.

Prudent Cost Savings

Anticipating the weaker outlook in 2009, the Trust made concerted efforts to rein in its operating expenses and improve operating margins such as by obtaining bulk discounts on utility charges. Partly as a result, net property income rose 28.6% to S$300.2 million in FY 2009 compared to FY 2008. Interest savings on borrowings provided a further lift to distributable income.

Together, these efforts enabled the Trust to deliver distributable income of S$198.5 million, an increase of 29.7% over last year's S$153.0 million.

Stable Distribution To Unitholders

Our full-year distribution per unit of 7.06 cents for FY 2009, was 28.8% over last year's 5.48 cents (after adjusting for the rights issue). Distribution payout was maintained at 100% despite a difficult year.

Optimising Portfolio Quality And Value Through Reconstitution

With a view to optimising the quality and value of the Trust's portfolio and improving its income stream in future years, we aim to execute a portfolio reconstitution strategy in 2010 that will involve asset divestment and, where feasible, re-investment of the sale proceeds in properties with newer specifications and better location or with the potential for asset enhancement.

Since the end of 2009, we have arranged to sell Robinson Point, a non-Grade A office building, at a price of S$203.25 million. We expect to complete the sale by April 2010 which will allow us to realise a 69.7% appreciation in value above the acquisition cost of S$119.8 million in 2004.

We are also reviewing plans for another non-Grade A property, Starhub Centre. Outline planning permission has been obtained from the Urban Redevelopment Authority to change its use from a pure commercial property, to a residential (capped at 80% of gross floor area) and commercial property. We will decide on the further steps after all relevant government approvals are received.

Market Outlook

The Singapore economy has been projected to grow between 4.5% and 6.5% in 2010. Singapore remains an attractive location for companies looking to expand in Asia, which we expect to boost growth in demand for office and retail spaces.

The leasing market is showing signs of recovery with more tenants contemplating expansion and more leasing enquiries received. Most of the new buildings to be completed in 2010 have already secured high pre-commitments. The office market has registered net positive demand over the last two quarters of 2009. The sustainable growth of positive demand will add impetus to the recovery of the office market rentals as unoccupied space is readily absorbed.

The Trust will continue its proactive asset management combined with prudent capital management. We will also drive performance by focusing on customer service and building on strong business ties with our key tenants. Given the Trust's strong balance sheet, we are well positioned to execute the portfolio reconstitution strategy with flexibility and, where necessary, speed so as to benefit from a potential recovery in the office market.

Recognition And Accolades

In May 2009, the Trust was voted "Singapore's Best Mid-Cap Company for 2009" in FinanceAsia's ninth annual poll of Asia's best-managed companies. The award affirms investors' and analysts' confidence in our management and corporate governance.

The Trust was included in the FTSE4Good Index Series with effect from 18 September 2009 in recognition of our policies and management systems meeting international corporate responsibility standards. Including the Trust, there are only six Singapore-listed companies in the index series. FTSE4Good is a series of benchmark and tradable indices for responsible investors derived from the globally recognised FTSE Global Equity Index Series.

Appreciation

We wish to thank Mr Kee Teck Koon, who relinquished his position from the Board of Directors on 15 July 2009, for his invaluable contribution to the Trust over the years. We also welcome Non-Executive Director, Mr Ee Chee Hong, who joined us on 15 July 2009.

Last but not the least, we would like to extend our sincere thanks and heartfelt appreciation to our staff for their hard work and dedication, and to our tenants, business partners and unitholders for their unwavering trust and faithful support over the years.

Richard E. Hale

Chairman

Lynette Leong Chin Yee

Chief Executive Officer