CCT – Nomura

Forum takeaways
From the Nomura Asia Equity Forum: CCT confirmed that it sees significant rental reversionary potential in the portfolio. While credit markets are tight, management expects no significant refinancing to be needed until March 2009, and is looking to agree terms by end of this year. We see inherent value in the office portfolio and retain our STRONG BUY rating on CCT.

Anchor themes
Assuming office supply will remain tight through 2008F, we expect office rents to peak during 2H08-1H09F, before entering a cyclical decline in 2010F (down 13.7%) and 2011F (down 19.0%), amid increased new supply.

Strong rental reversions are likely to underpin REIT cashflows. That said, growing concern over their ability to refinance debt have seen REITs trade below book. In such conditions investors need to focus on underlying asset values, while REITs with well-located assets should benefit from expectations of rising M&A activity.

Rental reversions, low gearing