CCT – CIMB

Holding up well

• Results in line; Upgrade to Outperform. 1Q10 results met Street and our expectations (26% of full year forecast). With strong economic recovery and good take up of new office supply, we believe a revival in office rents and occupancy will come sooner than expected. We increase our rental growth expectations for CCT’s Grade A assets by 1-4%, taking into account updated lease expiry information; and assume 3-5% growth for other assets (from flat growth). After our changes, our DPU estimates rise 7-9% between 2010-12. Our DDM target price (discount rate 7.8%) rises accordingly to S$1.26 (from S$1.09). Our new target price offers a prospective total return of 15.2% from a potential price upside of 8.6% and forward dividend yield of 6.8%. CCT is the cheapest large cap SREIT (0.8x P/BV) with CMT and AREIT already above book value. We believe this is opportune time to accumulate the stock in view of improving office demand indicators. Upgrade to Outperform from Underperform.

• 1Q DPU of 1.93cts (CIMB-GK 7.3cts). Distributable income of S$54.3m and DPU of 1.93cts formed 26% of full year forecast. DPU grew 19.3% yoy and 2.6% qoq. Net property income (NPI) of S$77.6m was up 11% yoy mainly on positive rental reversions and/or higher average occupancies for Capital Tower, Six Battery Road, Robinson Point, Market Street Carpark and Wilkie Edge. CCT portfolio occupancy rose 0.3%-pts to 95.1%. Grade A offices in the portfolio As at 31 Mar 09, average portfolio passing rents stood at S$8.64 psf, a marginal 1.4%-point improvement from S$8.52 psf (31 Dec 09).

• Recovery of office market could be sooner than expected. Net new demand for office space has traditionally shown high correlation to economic movements. Strong GDP numbers and good pre-leasing of new office supply suggests that recovery of rents and occupancy could be sooner than expected.

• CCT well-prepared to take on acquisition opportunities. We view CCT’s strategy to 1) divest non-core assets, 2) undertake capital management and 3) prepare for the debt maturity in 2011 positively. We believe CCT will be ready to take on acquisition opportunities when they arise.