CapitaLand Commercial Trust (CCT) announced its 4Q18 results this morning which came in within our expectations. Gross revenue and NPI jumped 14.8% and 16.6% YoY to S$99.0m and S$79.3m, respectively.

Growth was driven largely by contribution from the acquisitions of Asia Square Tower 2 (AST2) in Nov 2017 and Gallileo in Jun 2018, but partially offset by the divestment of Twenty Anson in Aug 2018. DPU grew 6.7% YoY to 2.22 S cents.

For FY18, CCT’s NPI rose 18.5% to S$314.6m, while DPU of 8.70 S cents represented a slight growth of 0.5% and formed 98.4% of our FY18 forecast.

On the rental front, CCT highlighted that the majority of its leases achieved positive rental reversions in 4Q18. Committed rents (psf/month basis) at CapitaGreen, Six Battery Road and One George Street (OGS) were S$11.31-S$13.00, S$11.30- S$13.50 and S$9.35-S$10.30, versus average expired rents of S$13.62, S$12.38 and S$9.28, respectively.

Singapore’s office market continues to see an upward trajectory in spot rents, as core Grade A CBD office rents rose 3.3% QoQ to S$10.80 psf/month in 4Q18, such that overall rents grew 14.9% in 2018, based on data from CBRE.

Looking ahead, CCT’s average expiring rent of S$10.46 psf/month in 2019 is currently lower than the market rent of S$10.80 psf/month, implying room for positive rental reversions ahead. More details will be provided after the analyst briefing.

We currently have a HOLD rating and S$1.68 fair value estimate on CCT.

Source: OCBC Research - 24 Jan 2019