Office landlord CapitaLand Commercial Trust (CCT) said it is looking to ride the office market recovery, but remains mindful of potential reductions in rent this year when leases are renewed.
Its 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 Mr Kevin Chee, CEO 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 older buildings bode well for the office rental cycle. "This will allow us to leverage on the rising market rents," Mr Chee told analysts at a briefing yesterday.
But the full impact of negative rental reversions from 2017 is expected to flow through this year, given the high rental rates of expiring leases in some of its buildings.
Mr Chee said that in pursuing growth, CCT will also evaluate investments outside of Singapore, as assets in the country are tightly held and highly sought after.
CCT reported yesterday a 13 per cent drop in distribution per unit (DPU) to 2.08 cents for the fourth quarter ended Dec 31 last year, diluted by 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 $86.3 million and 4 per cent to $68 million respectively. These were hit by divestments 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 helped to mitigate the impact.
AT A GLANCE
GROSS REVENUE: $337.5 million (+13%)
NET PROPERTY INCOME: $265.5 million (+14.8%)
DISTRIBUTION PER UNIT: 8.66 cents (-4.6%)
For the full year, DPU was down 4.6 per cent to 8.66 cents, though 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 leasing demand is still coming from banking, insurance, finance services, technology, and the energy and commodity sectors.
A pilot project at Twenty Anson - converting one floor into office suites with meeting facilities - is expected to generate rental premium of 10 per cent to 15 per cent when fully filled. The redevelopment of Golden Shoe Car Park is on track, with groundbreaking scheduled for next month.
As of the end of December, CCT's monthly average office portfolio rent grew by 5.9 per cent from a year ago to $9.74 per sq ft. Its portfolio's committed occupancy rate stood at 97.3 per cent, above the market rate of 93.8 per cent.
CCT's distribution of 4.1 cents for the second half of 2017 will be paid out on Feb 28. Its units closed one cent lower at $1.90 yesterday.