CCT – DBS

Strong organic growth

Comment on Results

CCT posted a smaller 15.6% improvement in net property income to $49.6m on a 23% rise in revenue to S$71.2m as higher property taxes boosted expense ratio to 30.3%. Distributable income rose 23% to $35.9m translating to a DPU of 2.59cts. The better performance was due to strong organic growth from its office and retail assets as portfolio occupancy levels reached 99.6%.

During the quarter, new and renewal office and retail leases were transacted at 195% and 159% above preceeding levels. Highest average rents of $20.50psf were committed at 6 Battery Rd. Looking ahead, CCT is expected to continue benefiting from the positive rental reversion trend with a total 56% of rental income due to be reviewed over the remaining 2008 to 2010. The significant spread between renewal and average passing rents should translate to a strong uplift in income over the 2 years.

Furthermore, acquisition of One George St, scheduled to complete in 2H08, should provide a new accretive income source. In addition, progressive completion of asset enhancement activities at Raffles City Tower should lead to a further boost in bottomline.

Recommendation

We are maintaining Buy on CCT for its strong organic earnings growth. Projected FY08 and FY09 DPU of 10.7cts and 12.9cts translates to a yield of 5.1% and 6.1% respectively. Our price target of $2.93 offers a potential upside of 40%.