JT 8.2016This article by Jennifer Tan (left, Director, Research & Products,  Equities & Fixed Income, at the Singapore Exchange) was published in SGX's kopi-C: the Company brew series on 10 March 2017. The article is republished with permission.

Capital TowerCCT portfolio property Capital Tower is a Grade A office building that was worth S$1.3 bn as at December 2016.
(Photo: Company)

As a woman blazing her trail in a man's world, Lynette Leong is totally in her element.

The Chief Executive Officer of CapitaLand Commercial Trust (CCT), the first and largest commercial real estate investment trust (REIT) listed on SGX, believes women possess many advantages that allow them to complement their male colleagues in the board room.

"We have plenty of qualities that can complement and provide a good balance to the male attributes - we need not act masculine or try to compete with men," she said.

Instead, women should always play to their strengths, she noted. A feminine touch, an eye for detail and a flash of intuition could go far in establishing rapport, defusing tension, or even closing a deal.

These traits played a critical role when Leong, then a senior executive with a US real estate investment management firm, tried to complete the purchase of distressed assets from a South Korean chaebol.

LQM000066It's all about learning from one another and improving each other.

- Lynette Leong

CapitaLand Commercial Trust

Tensions skyrocketed after the deal stalled, and it fell upon her - the only woman in a room full of table-pounding, chain-smoking men - to resolve the situation.

"I was able to remain calm, even though it was totally nerve-wracking, and I was quaking inside. The atmosphere in the room was very tense, but I had to smile, speak calmly and politely, be objective and not show any emotion," she recalled.

Leong's ability to think on her feet and turn the situation around culminated in a transaction that generated huge returns and became a model deal. "In this case, I believe a woman's touch provided me with the edge," she added.

Breaking Barriers

Years of navigating complex negotiations and transactions in the real estate world - mostly dominated by the opposite sex - produced a tougher Leong.

A National University of Singapore graduate with a Bachelor of Science in Estate Management and a Master of Science in Real Estate, Leong cut her professional teeth as a banker with two international banks between 1988 and 1993, and at Jones Lang Wootton between 1993 and 1995.

She held various senior roles in LaSalle Investment Management from 1996 to 2003, based - through a series of postings - in London, New York and Chicago, and was one of the founding directors of its Asia office. She also founded and helmed Ascendas Group's South Korean office between 2003 and 2007, before being appointed CEO of CapitaLand Commercial Trust Management Ltd, the manager of CCT, in October 2007.

Leong Chin Yee

LQM oooo66 I always tell my team - never take no for an answer, and challenge the status quo. You need to be creative and resourceful, and find new ways of doing things, especially in more opaque markets.

- Lynette Leong

CapitaLand Commercial Trust
(Photo: Company)

Been there, done that, Leong has the proverbial scars to prove it.

"I trained myself in London and Korea to hold my liquor. Sometimes my day started with a pint in the pub, or I would have to drink three to four rounds in a night, and even sing and dance in the karaoke," she recalled with a laugh.

She also learnt to push boundaries and navigate obstacles.

"I always tell my team - never take no for an answer, and challenge the status quo. You need to be creative and resourceful, and find new ways of doing things, especially in more opaque markets."

Under Leong's leadership, CCT is well-positioned for the next stage of growth.

Listed on Singapore Exchange in May 2004, CCT was created through a distribution in specie by CapitaLand Ltd - one of Asia's biggest real estate developers - to its shareholders. The REIT was included as a constituent in the benchmark Straits Times Index (STI) on 21 March 2016.

CCT, which aims to own and invest in income-producing commercial real estate and real estate-related assets, has a market capitalisation of more than S$4 billion.

Over the last five years, its distribution per unit (DPU) has grown more than 20% - from 7.52 cents for FY2011 to 9.08 Singapore cents for FY2016.

The total value of CCT's deposited properties stood at S$8.8 billion at end-2016, comprising a portfolio of 10 prime commercial properties in Singapore, including one joint venture. This compares with a portfolio value of S$6.7 billion at end-2011.


♦ Iconic Milestone

Looking back on her near decade-long career with CCT, Leong derives her greatest satisfaction from the development of CapitaGreen, an iconic 40-storey premium Grade A office tower that was redeveloped from Market Street Car Park, and designed by internationally acclaimed, award-winning Japanese architect Toyo Ito.

The energy-efficient building, jointly developed by CapitaLand, CCT and Mitsubishi Estate Asia, has a double-skin façade comprising a primary wall of glass and a secondary layer - more than 50% - of living plants, which enables the building to reduce solar heat gain.

Atop the skyscraper is a lush tropical forest garden, and a red and white sculptural petalled funnel that draws in fresh, cooler air, which is circulated within the building after passing through the air-handling units.

The development has garnered a slew of local and international awards, including Best Tall Building in Asia and Australasia, conferred by the Council on Tall Buildings and Urban Habitat.

Stock price  $1.645
52-week range $1.375 - $1.68
Market cap S$5.0 bn
Price/Book 0.961 x
Dividend yield 5.4%
Source: SGX StockFacts

"Two weeks after I was appointed CEO, I was given the CapitaGreen project and told to make it happen," Leong recalled.

"There were many risks involved, as it concerned the redevelopment of one of two historic public parking stations in Singapore. It was a very challenging, long-drawn process spanning the Global Financial Crisis, but the outcome was phenomenal," she noted.

"As a responsible building owner, we've added value in architectural, environmental, and economic terms - redeveloping an asset of lower value into something worth much more, and redefining the Singapore skyline for decades to come."

CapitaGreen's economic success was demonstrated in CCT's latest quarterly results, boosting its DPU for the year ended 31 December 2016 by more than 5%, despite falling rentals and oversupply in the office market. Last May, CCT exercised its call option to buy the remaining 60% of the project it didn't already own.

"Valued at S$1.6 billion, CapitaGreen was a major milestone, transforming the Trust and adding value to our portfolio. This will provide a springboard for us to take on bigger challenges in the future," Leong said.

Cementing Position

Her next project is more ambitious, involving the redevelopment of the 10-storey Golden Shoe Car Park - also strategically located in the Central Business District - into a higher-value commercial development that includes an office tower.

The project could potentially create a commercial gross floor area of approximately 1 million square feet and comprise an office tower of up to 280 metres above ground, on par with the tallest buildings in the CBD.

Approvals are being sought from various government bodies for the change of land use, subject to payment of a differential premium and rezoning of the Master Plan.

To finance the redevelopment, CCT will evaluate appropriate investment and funding structures, including a joint venture and sale of existing assets. It aims to kick-start the project by the second half of this year, subject to obtaining all relevant approvals and completion of a feasibility study. Construction is expected to be completed in 2021.

LQM000066The market is moving towards greener, quality buildings like CapitaGreen, which has seen strong demand. We are able to maintain a high occupancy rate - around 97.1% - for our portfolio because we have continually upgraded the quality of our older assets to cater to modern demands.

- Lynette Leong

CapitaLand Commercial Trust

"Getting the relevant approvals has been a very long-drawn process, just as it was with CapitaGreen. The size of the differential premium is also critical in determining the economic viability of the project," Leong noted.

The REIT constantly seeks value-creation opportunities in line with its portfolio reconstitution strategy, so as to generate higher returns for unit holders.

"We hope to replicate CapitaGreen's success with the redevelopment of Golden Shoe Car Park, so as to spark a new growth catalyst for the Trust," she added.

The project could cement CCT's position as the largest office landlord in the CBD, and provide an opportunity to design an ultramodern building of the future.

With globalisation, an increasingly mobile workforce and the rise of digital technology, the future of work sits on the cusp of change, Leong noted.

"Millenials, who are tomorrow's leaders, will not want to sit in an office all day - they prefer to move around with their tablets and laptops, and work in all sorts of places. They also want to engage more, collaborate more, and have work-life balance," she added.

"So when we consider the design for this redevelopment, we want to create something that epitomises the office of the future."

And state-of-the-art properties are the way to go. "The market is moving towards greener, quality buildings like CapitaGreen, which has seen strong demand. We are able to maintain a high occupancy rate - around 97.1% - for our portfolio because we have continually upgraded the quality of our older assets to cater to modern demands," Leong noted.

♦ Office Glut

raffles city fountainRaffles City Singapore is a CCT portfolio property that is a prime landmark in Singapore's civic and cultural district. It is one of Singapore's largest integrated developments and was worth S$3.2bn as at December 2016. (Photo: Company)

The domestic outlook, however, remains challenging in the near term, as the market grapples with oversupply.

Singapore's CBD office market rents have declined by about 20% since the first quarter of 2015.

In the December quarter of last year, rentals slumped 1.8%, after sliding 1.1% in the previous quarter, according to data from the Urban Redevelopment Authority (URA).

As a result, island-wide occupancy rates for office space declined 88.9% at end-December, from 89.6% at end-September.

It's still a tenant's market today, due to economic uncertainty and stiff competition among landlords, Leong noted, pointing to the upcoming Marina One project - comprising two 30-storey premium Grade A office towers in the Marina Bay financial district - and DUO's 39-storey commercial tower with 20 levels of Grade A office space in Bugis, close to the CBD. Both developments will be ready for occupancy this year.

Signs of a turnaround could emerge only in late 2017. "My sense is that it will likely be a 2018 recovery, as there is still much supply to be absorbed. However, when the market recovers, it could be a sharp rebound. Supply is now an issue, but demand is beginning to catch up."

LQM000066It's all about creating a flexible and conducive work environment so as to enhance tenant retention.

- Lynette Leong

CapitaLand Commercial Trust

And over the long term, demand for quality office space in Singapore, particularly from multinational corporations, will remain firm, as there is relatively low new supply in the core CBD area beyond 2018, she added.

Meanwhile, CCT is exploring ways to be agile in meeting tenants' needs and improving customer experience. "Due to uncertainties in the business environment, our customers want more flexibility in their lease terms or step-up lease payments. We're studying these options."

Some tenants also have fluid, rather than fixed, space requirements. In such cases, they may not have to sign fixed-term leases.

"It's all about creating a flexible and conducive work environment so as to enhance tenant retention," she noted.

"We try to strengthen our relationships with our tenants, not only at the management level, but also at the employee level. It's always costly for any business to move, and if we're able to keep our tenants satisfied, happy and productive, chances are they will continue to extend their leases."

An Overcomer

When Leong is not caught up in the day-to-day operations of the REIT, she attempts cross-country cycling or potters around the kitchen, tinkering with recipes. "I enjoy baking and cooking - it's very therapeutic!" said the Le Cordon Bleu Paris graduate in patisserie, with a laugh.

She carves time out of her busy schedule to mentor youths, including those from her church. "We live in a complex world, and young people need guidance on how to handle the various challenges out there.

LQM oooo66

Young women today need to learn to be more assertive and stretch their limits.

- Lynette Leong

CapitaLand Commercial Trust

In particular, she feels a personal responsibility to help females.

"Young women today need to learn to be more assertive and stretch their limits. Many of them do not know how to navigate a man's world," she noted.

Topping her list of core values are tenacity and a strong work ethic.

"My advice is that when you do something, you should work at it with all your heart. If you fail, pick yourself up, learn from your mistakes, and carry on. In other words, be an overcomer," she added.

Leong's indomitable spirit was inspired by her late father, a resourceful entrepreneur and inventor. "He started his engineering business from scratch, encountered many challenges and survived several crises. He always pressed ahead, overcoming obstacles, and learning from his experiences," she recalled.

Another maxim that resonates with her is found in the Biblical Book of Proverbs - "As iron sharpens iron, one man sharpens another". This is central to her thirst for knowledge and commitment to continuous learning.

"It's all about learning from one another and improving each other," she pointed out, adding that she enjoys bouncing off ideas with her husband, an executive mentor with National University of Singapore's enterprise centre.

"I'm never embarrassed to say that I don't know the answer to life's problems. Every day is an opportunity to learn new things, and to do better."

Financial results

Year ended 31 Dec 
(S$ '000)
FY2016 FY2015 FY2014 FY2013
Gross revenue 298,577 273,219 262,608 386,936
Net property income 231,277 212,752 205,249 296,536
Distribution per unit (DPU) 9,08c* 8.62c 8.46c 8.14c

Quarter ended 31 March (S$ '000) 1QFY2017 1QFY2016 yoy chg
Gross revenue 89,525 66,857 33.9%
Net property income 69,855 52,028 34.3%
DPU 2.4c* 2.19c 9.6%

The estimated DPU for FY2016 and 1Q 2017 were computed on the basis that none of the convertible bonds due 2017 ("CB 2017") is converted into CCT units (“Units”). Accordingly, the actual quantum of DPU may differ if any of the CB 2017 is converted into Units.
Source: Company data

Outlook & Risks
    • Despite market headwinds, CCT's portfolio has remained resilient with 97.1% occupancy rate, above core CBD market occupancy rate of 95.8% in 4Q 2016. With proactive leasing efforts, only about 6% of leases by occupied office net lettable area are due for renewal in 2017.
    • Average monthly Grade A office rents eased by 2.2% QoQ to S$9.10 psf in 4Q 2016 on the back of an uncertain economic microenvironment and stiff competition for tenants. Nevertheless, pre-commitment levels at new office buildings under construction have been increasing, which demonstrates on-going leasing interest. Expiring rentals for CCT's Grade A office buildings, which are above market rates, are expected to put downward pressure on its Grade A office rental revenue, but this will be mitigated by continued strong contributions from CapitaGreen.
    • CCT's DPU for FY 2017 is expected to be stable, barring unforeseen circumstances, supported by contribution from CCT's 100% ownership in CapitaGreen.
    • CCT has a cumulative amount of retained net tax-exempt income of S$$20.4 million, largely from its 17.7%-owned MQREIT's preceding distributions. This amount translates to S$0.68 cents per unit as at 31 December 2016. The Manager will evaluate various options for the utilisation of total amount of tax-exempt income retained, including capital expenditure or future distributions to unit holders.
    • The Manager has announced the intention to redevelop Golden Shoe Car Park into a Grade A commercial development. The redevelopment is subject to authorities' approval for the conversion of the current zoning of "transport" to "commercial", the differential premium payable and financial feasibility. The operation of GSCP car park and commercial space is expected to cease by 31 July 2017.

CapitaLand Commercial Trust

CapitaLand Commercial Trust is Singapore's first and largest commercial REIT with a market capitalisation of about S$4.5 billion. CCT aims to own and invest in real estate and real estate-related assets which are income producing and predominantly used for commercial purposes.

The total value of CCT's deposited properties is S$8.8 billion as at 31 December 2016, comprising a portfolio of 10 prime commercial properties in Singapore - Capital Tower, Six Battery Road, One George Street, Raffles City (60.0% interest through RCS Trust), CapitaGreen (100.0% interest through MSO Trust), HSBC Building, Twenty Anson, Bugis Village, Wilkie Edge and Golden Shoe Car Park.

CCT is a constituent of the FTSE4Good Index Series - a series of benchmark and tradable indices derived from the globally recognised FTSE Global Equity Index Series. It is also a constituent of other benchmark indices including MSCI, the SGX Sustainability Index and FTSE Straits Times Index. CCT is managed by an external manager, CapitaLand Commercial Trust Management Ltd, which is an indirect wholly owned subsidiary of CapitaLand Ltd, one of Asia's largest real estate companies headquartered and listed in Singapore.

For its 1st quarter results for the period ended 31 March 2017, click here.

The company website is: www.cct.com.sg.

The ccompany's Stock Facts page is here.

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