CCT – CIMB

Refinancing secured

S$580m refinancing secured on 3-year term loan

All-in cost of debt estimated within 4.5%. CCT announced last night that it had secured refinancing for its S$580m loan that will be due in March 2009 with a 3-year loan term. Bankers involved were DBS, Standard Chartered, United Overseas Bank and The Bank of Tokyo-Mitsubishi UFJ. Cost of debt for this refinancing was not revealed but all-in interest cost was “well within the projections assumed in CCT’s circular” on One George Street, which was 4.4% for 2009. (This assumption excludes debt taken for Raffles City which is 4.2%). We estimate all-in cost of debt within 4.5%. S$390m of the S$580m, or about 67% of the loan is on fixed rates due to earlier interest swaps put in place till 2011.

Only one asset secured with the refinancing. Additionally, the refinancing was only secured on one asset, Capital Tower, vs the existing debt which was secured on seven properties (ie Capital Tower, 6 Battery Road, Robinson Point, Starhub Centre, Bugis Village, Golden Shoe Car Park and Market Street Car Park)

No redevelopment for Market Street Car Park. CCT also announced that it would abort its plan to redevelop Market Street Car Park into a office development, “in line with the need to conserve cash in such turbulent economic times”. CCT will also be moving on to enter into longer term leases with the retail tenants in the property, most of which are on short leases. Asking retail rents for the property range between S$12-16psf/mth.

Comments

Positive view, in line with expectations. The announcement is in line with our earliere xpectations that CCT will be able to refinance with a bank financing, rather than a rights issue. We take a positive view of the refinancing as (1) estimated all-in cost of debt for CCT remains within 4.5%, marginally lower than our more conservative assumption of 5%; (2) only one asset secured vs. seven from the existing debt; and (3) ability to secure a simple bank loan rather than a dilutive rights issue. The appearance of two local bankers (DBS and UOB) lends a sense of certainty and stability to the deal. The refinancing is likely to have a positive effect on the Reit sector as a whole. However, this announcement is likely to be the last price catalyst for CCT this year as we expect more negative news flow on falling office rents and declining office space demand. The decision to abort Market Street Car Park development did not come in as a surprise, and this had not been factored in our earlier assumptions.

Valuation and recommendation

Maintain Outperform at unchanged target price of S$1.08 (unchanged discount of 10.4%). We maintain our view that CCT is fairly valued at our target price of $1.08, which reflects a bear scenario. However, this announcement is likely to be the last significant price catalyst for CCT this year as we expect more negative news flow on falling office rents and declining office space demand.