CCT – CIMB
Still holding strong
• Broadly in line, occupancy stable. 1Q09 results are broadly in line with consensus and our expectations. DPU of 3.24cts forms 29% of our forecast for FY09, up 19.6% qoq due mainly to better net property income margins and trust expenses (down from one-off expense in 4Q08 for abortive cost for Market Street Carpark development). Net property income of S$69.9m was up 6.5% qoq as property-related expenses (excluding property tax and property management fees) declined 20%. Portfolio occupancy at 96.7% was up marginally from 96.2% in 4Q08, and remained materially higher than the islandwide average of 90%.
• Lease renewals on track. About 44.2% of office leases and 32.8% of retail leases expiring in FY09 have been renewed to date. Reversions were positive at 49% above preceding rates, typically signed three years earlier. Rents signed for CCT’s Grade A office buildings remain in the double-digit range amid market news that rents for some Grade A office buildings have fallen to single digits. Major tenants include Legg Mason (One George Street), CapitaLand (Wilkie Edge), BNI (Robinson Point) and foodcourt operator Koufu (Market Street Carpark). With good progress in lease renewals, committed occupancy at the end of April improved 1% pt over 1Q09 to 97.7%.
• Refinancing for debt expiring in 2009 secured. Management says it has obtained a letter of commitment for S$160m from a bank .This will be a 3-year-term loan secured on HSBC Building to be drawn down when its existing facility expires in mid-year. From the announced margin of 3% p.a. (inclusive of fees), we estimate an all-in cost of about 4.7%. This is still within our cost-of-debt estimate of 5%. With this, CCT has secured all refinancing of debt due in 2009.
• Maintain Outperform, earnings forecasts and target price of S$1.12. Management’s ability to improve occupancy in an environment of falling rents and rising vacancy is reassuring. We believe CCT’s distribution in FY09 will stay relatively stable, anchored by its top 10 tenants with a long weighted average lease term to expiry of 6.4 years. These top 10 tenants also contribute 50% to CCT’s monthly gross rental income. Maintain Outperform and DDM-based target price of S$1.12 (discount 10.4%).