CapitaLand Commercial Trust (CCT) reported its 1Q18 results this morning which came in within our expectations. Gross revenue and NPI jumped 7.7% and 10.5% YoY to S$96.4m and S$77.2m, respectively. The latter formed 25.5% of our FY18 forecast.

Growth was underpinned largely by a full-quarter contribution from the acquisition of Asia Square Tower 2 (AST2) and organic growth from CapitaGreen, but partially offset by divestments made.

DPU dipped 11.7% YoY to 2.12 S cents as a result of an enlarged unit base arising from a rights issue exercise and conversion of convertible bonds in FY17. This accounted for 23.9% of our FY18 forecast.

Encouragingly, CCT highlighted that it managed to secure committed rents largely above its expiring rents in 1Q18. Committed rents at AST2, Six Battery Road and One George Street were S$11.00-S$13.90, S$12.00-S$13.00 and S$9.50-S$11.40, versus average expired rents of S$11.77, S$12.22 and S$9.50, respectively.

This was in-line with the continued office market recovery, as core Grade A CBD office rents rose 3.2% QoQ to S$9.70 psf/month in 1Q18 following the 3.3% sequential increase in 4Q17, based on CBRE data.

We will provide more details after speaking with CCT.

For now, we have a HOLD rating and S$1.84 fair value estimate on the stock.

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Source: OCBC Research - 24 Apr 2018