CCT – DBS
Proactive asset management
• Results slightly ahead of expectations
• Sells Robinson Point, reviewing asset plans for Starhub Centre
• Maintain Hold with TP $1.23
Results slightly ahead of street estimates. CCT reported 4Q09 NPI of $80m, 3.8% better sequentially, on a revenue of $103.2m, up 0.6% qoq, on cost savings and marginally higher leasing income. Distribution income rose 0.5% qoq to $52.9m, translating to a DPU of 1.88cts. The group wrote down the value of its property portfolio by 5.4% to $5.7b, translating to a book NAV of $1.37 per unit. Correspondingly, gearing rose to 33.2%.
Looking ahead, a return of business confidence has led to a recovery in demand for office space while lower rents has resulted in a flight back to quality. However, rents are expected to trend lower owing to the large new supply over the next 2-3 years. As such, we anticipate negative rental reversions to kick
in this year as re-contracted rents are likely to fall below expiring levels, dragging on earnings.
Proactive asset management.CCT has emerged as the first major Sreit to execute a portfolio reconstitution strategy. It is selling Robinson Point to AEW for $203m, 11% above Dec 09 book value, and is planning to redevelop Starhub Centre into a residential/commercial property. We believe such activities, although DPU dampening in the immediate term, would enable the group to actualize its NAV as well as deepen its financial flexibility with a capacity of $3.4b of unsecured assets and MTN programme. Proceeds from the sale, including the tax-free gains, are likely to be reinvested in newer properties with better locations or for asset enhancement activities.
TP raised to $1.23. We are retaining our Hold call on CCT with a revised DCF-backed TP of $1.23. While we expect the portfolio review exercise could narrow the gap between stock price and book NAV over time, other catalyst such as reinvestment may take longer to materialize as current prime office cap rates of 4.25-4.5% are lower than the group’s implied property yield of 5.7%.