CCT – DBS

Prime beneficiary of asset reflation

FY06 results in line. 4Q06 DPU came in at 2.04 cents and 7.33 cents for FY06, in line with expectations. Portfolio occupancy continues to stabilize near 100% levels Renewals and new leases continue to achieve double-digit growth at 13.8% over preceding rents. Moving forward, CCT is likely to enjoy rental kicker from 52% of leases up for renewal in FY07 and FY08 for its office assets which is currently leased at below market rents.

Highest potential for debt capacity expansion. 4Q06 also saw revaluation surplus of S$356.5m which raised NAV per unit to S$1.86 from S$1.59 previously. This would be a broad based trend across the REIT sector, highlighting REITs with office exposure which will raise portfolio size on the balance sheet which translates to higher debt capacity. CCT would be the prime beneficiary as the largest office S-REIT in the market.

First foray into Malaysia. CCT has also recently subscribed to 30% stake in Quill Capita Trust (“QCT”), similar to CMT/CRCT. However initial investment size of S$28.8m is small relative to CCT and we see minimal impact from CCT’s perspective currently. As an alternate growth vehicle for CCT in Malaysia, although positive riding on the rising market, QCT would pale in comparison compared to CRCT. CRCT’s pipeline from Capitaland’s Development and Incubator funds include retail assets in any form, be it in development stage, incubation stage or stabilised assets across any geography in China.

Maintain Hold, TP S$ 2.64. We roll forward our DCF valuation to FY2011 and raise our target price to S$2.64 after incorporating contributions from QCT into our estimates and maintain our Hold recommendation.