CapitaLand Commercial Trust (CCT) announced its 2Q18 results this morning which met our expectations. Gross revenue and NPI jumped 12.0% and 12.5% YoY to S$98.0m and S$77.7m, respectively. Growth was driven largely by contribution from the acquisition of Asia Square Tower 2 (AST2) and organic growth from CapitaGreen, but partially offset by divestments made.

DPU dipped 4.0% YoY to 2.16 S cents as a result of an enlarged unit base arising from equity fund raising exercises and conversion of convertible bonds. For 1H18, CCT’s NPI rose 11.5% to S$154.9m, while DPU of 4.28 S cents represented a decline of 6.1% and formed 48.2% of our FY18 forecast.

Committed rents (psf per month basis) at AST2, CapitaGreen, Six Battery Road and One George Street were S$11.00- S$12.00, S$10.50-S$14.00, S$10.00-S$13.80 and S$9.10-S$9.50, versus average expired rents of S$13.26, S$12.30, S$12.37 and S$9.22, respectively. We believe this implies that there were still some negative rental reversions in 2Q18.

Notwithstanding this, Singapore’s office market continues to gain traction, as core Grade A CBD office rents rose 4.1% QoQ to S$10.10 psf/month in 2Q18 following the 3.2% sequential increase in 1Q18, based on CBRE data. This augurs well for CCT’s leasing momentum ahead, in our view.

We currently have a HOLD rating and S$1.84 fair value on CCT and will update our assumptions after attending the analyst briefing.

Source: OCBC Research - 19 Jul 2018