CCT – DBS

Awaiting blue skies

• Results in line with estimates
• Leasing environment to turn challenging in 2010
• Downgrade to HOLD, TP S$1.02

Performance in line. CCT reported 3Q09 results in line with our expectations. Gross revenues increased to S$102.6m (+10.9% yoy) and net property income (+15.5% yoy) as a result of continued positive rental reversions achieved at its portfolio. As of 3Q09, CCT’s average portfolio rent increased by c17%yoy, 3%qoq to S$8.49 psf per month. Distributable income came in at 21% higher yoy to S$45.9m (+21% yoy), translating to a DPU of 1.85 Scts.

Lowly geared. Balance sheet remains strong with gearing at 31.2%, interest cover at a healthy 3.1x. NAV per share stands at S$1.49.

Leasing environment to turn challenging in 2010. With the office sector continuing to face a daunting supply over the next 3 years, we expect the operating environment to remain soft in FY10-11F. With average passing rents in FY10-11 higher than current asking rent levels, topline is expected to weaken from projective negative reversions during renewals.

Downgrade to HOLD, TP S$1.02. We are downgrading our call to a HOLD, but lifted our TP to S$1.02 on the back of lower cost of equity assumptions. While stock is trading at P/BV of 0.7x, offering prospective FY10F-11F yields of 6.5% a muted office outlook is also likely to mean a lack of rerating catalysts for the stock in the near term from current levels. As such, we downgrade to HOLD on valuation grounds given the limited upside to our target price.