CCT eyes office market recovery in 2018/19

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OFFICE landlord CapitaLand Commercial Trust (CCT) said it is looking to ride the office market recovery, but remains mindful of potential negative rental reversions this year.

Its existing portfolio has lease expiries representing 8 per cent of monthly gross rental income this year and another 31 per cent next year.

But several things are looking up for the office sector, said Kevin Chee, chief executive of the Reit manager. Limited new office supply till 2021, high levels of pre-lease commitments for properties completing this year and the continued backfiling of vacancies in some of older buildings bode well for the office rental cycle.

"This will allow us to leverage the rising market rents," he told analysts at a briefing on Thursday.

But the full impact of negative rental reversions from 2017 is expected to flow through this year due to the high rental rates of expiring leases in some of its buildings.

Mr Chee added that in pursuing growth, CCT will evaluate investments outside Singapore; within the country, opportunities may be limited because assets are tightly held and highly sought-after.

CCT reported on Thursday a 13 per cent drop in distribution per unit (DPU) to 2.08 Singapore cents for the fourth quarter ended Dec 31.

This was due to the dilutive effects of a rights issue, conversion of convertible bonds and issuance of units in management fees.

On an adjusted basis, the DPU would have grown 6.1 per cent.

Gross revenue and net property income for the fourth quarter slipped 3.8 per cent to S$86.3 million and 4 per cent to S$68 million respectively.

These were hit by sales of its stakes in One George Street, Golden Shoe Car Park and Wilkie Edge. Higher income from CapitaGreen and contribution from newly acquired Asia Square Tower 2 mitigated the impact.

For the year, DPU was down 4.6 per cent to 8.66 cents; on an adjusted basis, it would have risen 5 per cent.

During fiscal 2017, CCT signed some 666,000 sq ft of leases, of which 38 per cent were new leases. Mr Chee said the Reit continues to see leasing demand from banking, insurance, finance services, technology, and the energy and commodity sectors.

Meanwhile, it has started a pilot project at Twenty Anson, where it converted one floor into office suites with meeting facilities and collaborative spaces.

Mr Chee said that this is expected to generate 10-15 per cent rental premium when fully filled.

The redevelopment of Golden Shoe Park remains on track and its groundbreaking is scheduled to take place in February, he added.

As at end-December, CCT's monthly average office portfolio rent grew by 5.9 per cent from a year ago to S$9.74 per square foot (psf).

Its portfolio committed occupancy rate stood at 97.3 per cent, well above the market rate of 93.8 per cent.

The committed occupancy at Asia Square Tower 2 rose to 90.5 per cent as at end-December (from 88.7 per cent when it was acquired by CCT in November 2017); asking rents hover at S$11.50-12.50 per square foot per month.

Mr Chee said that the filing up of vacancies at Asia Square Tower 2 will generate additional income for CCT.

CCT's distribution of 4.1 cents for the second half of 2017 will be paid out on Feb 28. Its units closed a cent lower at S$1.90 on Thursday.

Source: Business Times, 26 Jan 2018