CCT – DBSV

Enhancing 6 Battery Rd

• 6 Battery Rd AEI could yield additional $7.4m NPI

• Small but positive move to maximize returns

• Maintain Hold with TP $1.24

CCT to enhance 6 Battery Rd. CCT has proposed to embark on asset enhancements for 6 Battery Rd, including upgrading of interior specifications such as facelift of ground lift lobby and reception areas, improving existing lifts, renewing restroom facilities, increasing ceiling height to 2.8m, enhancing building management system and putting in a Next Generation National Broadband Network. To be completed in phases over Oct 2010-2015, the $92m initiative will be funded internally (current gearing 33.8%) and yield a ROI of 8.1% or $7.4m additional NPI.

Small but positive move to maximize return. While the impact is relatively small, we see this move to tap low hanging fruits from its existing portfolio as positive and in line with its portfolio reconstitution strategy. With the bottoming out of the office rental market, this exercise is also timely. 6 Battery Rd is well located in the prime Raffles Place area with direct access to MRT nodes and has a long remaining underlying land lease of 815 years. The upgrading works will be done in tandem with tenant lease expiries to minimize downtime. This would coincide with major tenant Standard Chartered’s (SC) plan to give up 70k sf of space (14% of building, 2% of portfolio space) upon expiry in 2011. Potential candidates to take up the slack have already been identified. SC will retain c120ksf of NLA in the building.

Slight uplift in TP to $1.24. We have maintained FY10 and FY11 DPU estimates of 7cts and 6.7cts respectively, as the expected vacancy of 5% during the AEI period is within expectations. We expect the impact of additional income to be felt post FY13, which will raise DCF by 1ct to $1.24. CCT is currently trading at 6.4-6% FY10-11 yield and 0.8x P/BV. Other share price catalysts such as plans to redevelop Starhub Centre are still awaiting approvals and acquisitions are unlikely to materialize any time soon. As such, we maintain Hold.