CCT – DMG

Sale of Starhub Centre; one-off gain of 4¢/share

Sale of Starhub Centre; one-off gain of 3.9¢ per share. As part of CCT’s portfolio reconstitution strategy, CCT entered into an S&P with Frasers Centrepoint Limited to sell Starhub Centre for S$380m. This comes at a 42.5% gain over its last appraised value of S$267m. After adjusting for divestment fee and other costs, the net gain works out to S$109m, a one-off gain of 3.9¢ per share. Management has no intentions of paying special dividends but to pursue possible acquisition opportunities and/or to repay debt. Maintain NEUTRAL.

Rationale for property sale instead of redevelopment. In January, management alluded that their portfolio reconstitution strategy plans would include the divestment or redevelopment of properties that has reached the optimal stage of their lifecycle. They have evaluated the alternatives and have decided against redeveloping Starhub Centre into a residential property in view of exposing the group to undue residential development and market risks.

Best possible way of unlocking value. We are in favour of this divestment as Starhub Centre is nestled away from the main financial district and, in our view, will struggle to command reasonable market rents, in the long-term. At the peak of the office market, Starhub Centre had an average passing rent of below S$5/sqft, significantly lower than most schemes in the Raffles Place and Tanjong Pagar vicinity.

Stronger balance sheet; maintain NEUTRAL. The sale of Starhub Centre will have no material impact on DPU as it contributes to only 4% of CCT’s net property income. Management has reiterated that they will use the proceeds to pursue possible acquisition and/or repay debt. Recall, CCT has S$85m debt due for expiry in 2010 and a further S$658m in 2011. CCT has a cash holding of S$173m as of Mar 2010, which will likely increase to over S$550m after this sale. This puts it in good stead for greater financial flexibility. We reduce our FY10 DPU estimate by 3.2% to 7.2¢. Maintain NEUTRAL and TP of S$1.24.