CAPITALAND COMMERCIAL TRUST: Pursues New Growth Catalysts

CCT 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.

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.

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
CEO

CapitaLand Commercial Trust
(Photo: Company)

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.

"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.

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.

- Lynette Leong
CEO

CapitaLand Commercial Trust

Raffles 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."

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."

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

- Lynette Leong
CEO

CapitaLand Commercial Trust

• 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.