CCT – CIMB

Smooth ride ahead

• Met expectations. 4Q08 results were in line with Street and our expectations. DPU of 2.71cts grew 16% yoy to form 26% of our forecast for FY08. Gross revenue of S$97.2m was up 56.6% yoy mainly on contributions from One George Street. Fullyear DPU of 11cts was in line.

• Moderate asset write-down of 3%. As at 1 Dec 08, CCT wrote down 3% of its asset values across its portfolio over their last valuation on 1 Jun 08. StarHub Centre was affected the most, by 7.9% and Raffles City, the least, at 1.4%. After the write-down, asset leverage moved up to 37.3% from 35.9% in 3Q08.

• Portfolio occupancy down to 96.2%. Committed occupancy on a portfolio basis was 96.2%, down from 98.9% in 3Q08. The drag was attributed to Wilkie Edge which was legally completed in Dec 08 and only 70% pre-committed. Average monthly rent for CCT’s portfolio was S$7.44 psf in the quarter, up moderately from S$7.20psf in 3Q08.

• No equity raising in “immediate” term; downside factored in. Refinancing nightmares in 2009 should ebb with S$650m of debt refinanced earlier this month. Management is confident of refinancing the remaining S$116m due in Jun 09. With eight unencumbered assets on hand, there should be sufficient financial flexibility for its upcoming refinancing negotiations. Management said there are no plans for equity-raising in the “immediate” term, although it would not define its duration. Weakening office demand has mostly been factored into our assumptions in the form of recession-level occupancy levels (80-85%) and weakening rents.

• Maintain Outperform; target price raised to S$1.12 (from S$1.08). We further refine our assumptions, factoring in rental declines from actual 2008 passing rents. We also introduce FY11 forecasts. Our DPU estimates for 2009-10 increase by 0.8- 3.6%. Our DDM-derived target price also rises to S$1.12 from S$1.08 (unchanged discount 10.4%). Concerns over widespread rights or equity issuance by REITs sprang after A-REIT’s surprise recapitalisation last week, sending REITs’ share prices down. With a P/BV of 0.29x, CCT remains a value stock with forward yields of 13%. Maintain Outperform.