Higher contributions from joint ventures helped CapitaLand Commercial Trust (CCT) to a marginal increase in its distribution per unit (DPU) in the second quarter amid a challenging office property market.

DPU for the three months to June 30 was 2.2 cents, up 0.5 per cent from a year ago. Despite a dip in net property income, distributable income rose 1 per cent to $65.09 million, CCT's manager CapitaLand Commercial Trust Management reported yesterday.

The trust manager attributed the increase to higher contributions from CCT's 40 per cent stake in CapitaGreen and 60 per cent interest in Raffles City Singapore.

Higher operating expenses due to leasing commissions and property tax put a drag on net property income, which fell 4.5 per cent to $51.45 million.

Gross revenue came in at $67.57 million, down 2.2 per cent from $69.11 million in the previous year, due to lower occupancies in some properties such as Capital Tower and One George Street.

Ms Lynette Leong, chief executive of CCT's manager, said: "Capital Tower was a case of Mizuho, which left the building. However, we have since backfilled most of the space.

"For One George Street, it was a result of Royal Bank of Scotland leaving. We have backfilled one-third of the space and we are in advanced negotiation for a large portion of the rest."

Ms Leong told a briefing yesterday that CCT's portfolio occupancy was 97.2 per cent in the quarter, better than the market rate of 95.1 per cent. However, it was lower than CCT's portfolio occupancy of 98.1 per cent in the first quarter.

About 277,000 square feet of new leases and renewals were signed during the quarter - of which 27 per cent were new leases. New and renewed tenants included the Economic Development Board, Freemont Capital, General Mills Singapore, Invictus Asset Management, Korea Development Bank and Sea Hub Energy.

CCT still achieved positive rental revisions for office leases committed in the second quarter, but the leasing environment is expected to remain challenging in the next two years, in view of the large supply of office space in the pipeline.

"Having achieved high rents before, now with the market becoming soft, we are faced with headwinds. Nevertheless, with CapitaGreen's contribution... that should mitigate a lot of the leasing risk," Ms Leong noted.

CCT will complete the acquisition of the 60 per cent stake in CapitaGreen - which was announced in May - in the third quarter. Additional contributions from the asset is expected to boost its portfolio net property income in the fourth quarter and beyond.

Net asset value per unit was $1.77 as at June 30, unchanged from Dec 31. CCT posted a 4 per cent decline in net property income at $103.48 million for the first half while gross revenue fell 2.1 per cent to $134.43 million. DPU for the six months was 4.39 cents, up from 4.31 cents a year earlier.

CCT units closed one cent lower at $1.56 yesterday, after the earnings were announced.