CCT – Lim and Tan

Sector In Favor

• Moody’s has upgraded CCT’s rating outlook to Positive from Stable, although CCT’s corporate family rating and unsecured debt rating are left unchanged at Baa2 and Baa3 respectively.

• At $1.22 yesterday, CCT is at a new post-crisis high, much like Keppel Land ($4.01, up 6). K-Reit is however still below the year’s high.

• The commendable performance of office-related stocks can be attributed to the growing consensus that office rentals have started to recover, as fears of oversupply recede.

• Rents for Grade A office space averaged $8 psf in Q1 ’10, marginally lower (1.2%) than the preceding quarter’s $8. But the rate of decline is way below the 20% drop between Q3 ’08 and Q4 ’08, which coincided with the Lehman Brothers collapse.

• Occupancy, on the other hand, actually rose in Q1 ’10, albeit a marginal 0.8% to 91.9%, vs 97.6% in Q3 ’08.

• As for supply, which is estimated to total 3.7 mln sf till 2016, or 0.6 mln sf a year, it is encouraging to see demand pick up, to 0.24 mln sf in Q1, which was the total for the whole of 2009.

• Performance of new office developments provides much comfort:

– Marina Bay Financial Centre (MBFC):

Towers 1 & 2 (totaling 1.6 mln sf) are fully leased, while Tower 3 (1.3 mln sf and to be anchored by DBS) is now 55% leased;

– Ocean Financial Centre (OFC): 850,000 sf of net lettable space and completion in mid 2011, is >30% committed.