CCT

CCT: 1Q16 results were in line with expectations. DPU and distributable income climbed 3.3% y/y to 2.19¢ and $64.8m respectively, due to higher contributions from JVs.

Gross revenue and NPI slid to $66.9m (-1.9%) and $52m (-3.6%) on lower occupancies at Capital Tower and Golden Shoe Car Park, as well as higher property tax. The office portfolio saw average rents increase 0.7% q/q.

Associate performance was shored by higher contributions from 40% owned CapitaGreen and 60% owned Raffles City.

Occupancy rose 1ppt q/q to 98.1% with weighted average lease to expiry of 7.3 years. Committed occupancies at both Capital Tower (1Q16: 98.1%, 4Q15: 94.1%) and Golden Shoe Car Park (1Q16: 97.7%, 4Q15: 97.3%) have improved, and contributions should recover subsequently. 16%/9% of office/retail leases are set to expire from now to end 2017.

Aggregate leverage was fairly stable at 30.1% (+0.6ppt q/q), with average cost of debt of 2.5%.

In its pipeline, CCT still has an option to acquire the balance 60% of CapitaGreen by 2017.

Outlook for the broader Grade A office is lacklustre. Rental rates fell 4.8% q/q to $9.90 psf in 1Q. The impending supply in 2H16 is expected to pressure rental rates further. CCT’s exposure is relatively sheltered, given major leases will expire in 2019 and beyond.

Maybank KE prefers CCT in the office space, given it has the lowest gearing in the sector, its DPU is not clouded by capital distribution, and it has the lowest exposure to the financial sector, where employment growth is slowing.

CCT is currently trading at 6.2% annualised 1Q16 yield and 0.8x P/B.

Maybank KE has a Hold call on CCT with TP of $1.40.