CCT – Nomura

Addressing FY11F maturities

Extending debt maturities, retaining financial flexibility

CCT has priced its proposed S$225mn issue of a 2.7% CB due 2015. The issue could potentially be upsized to S$250mn. While FY10F debt maturities appear to be now fully addressed, CCT could face debt maturities of up to S$1.01bn in FY11F. The reopened unsecured public debt market allows CCT to secure longer-term funding at a relatively lower cost without sacrificing too much financial flexibility.

Marginal changes to DPU

Taking into account capital management initiatives since our last update (we have assumed the latest CB issue to be upsized in our model), we cut our net finance cost projection by 0.28Sct/unit but this was largely offset by a change of 0.25Sct/unit in our amortization assumption of transaction costs for borrowings. Overall, there is a minor increment of 0.02Sct/unit in our FY10-12F DPU forecasts.

Investment-grade assets' cap rates likely to remain tight

Following the reopening of the MTN market late last year, the recent deals by CCT and AREIT signal further improvement in the public debt market and investment-grade assets' cap rates are likely to remain tight. While this means external growth is increasingly challenging, enhanced capital value fundamentals should help bolster portfolio NAV. Unencumbered assets also provide greater scope for portfolio management (such as the sale of Robinson Point), which could be a reason for CCT's preference for unsecured debt funding.

Reiterate BUY rating with price target S$1.35

Our NAV and price target is tweaked by S$0.01/unit to S$1.35 (from S$1.34) to reflect changes in FY10F net debt forecast. This implies a potential total return of 25.9%, including an FY10F yield of 6.4%.