CCT – CS

One-for-one rights issue: 37% dilution on FY10 DPU

● As widely expected, CCT has announced a fully underwritten renounceable one-for-one rights issue to raise gross proceeds of S$828.3 mn at a rights price of S$0.59, a 44.3% discount to the closing price of S$1.06. CAPL, which owns 31.4% of CCT, has underwritten to subscribe for its pro-rata S$260 mn.

● The net proceeds will primarily go towards paying down CCT’s existing borrowings, which is likely to be the expiring S$885 mn in 2010.

● Also, adjusting for a 10.1% asset write-down to S$6.0 bn due mainly to sharp rent declines since the last revaluation in December 2008; pro forma gearing will fall to 30.7% from 38.3% as of March 2009. Pro forma NAV will fall 52% to S$1.51 from S$2.91.

● After adjusting for interest and manager fee savings, we estimate FY09-11E DPU to be diluted 27-37%, implying FY10E yield of 7.3% on TERP S$0.825 versus S-REIT sector’s 10%. While the rights should alleviate share overhang concerns, we expect the office sector to remain challenging on negative demand and 16% new office supply by 2012. We maintain our target price of S$1.00 cum-rights.