CCT – CIMB

Lighter and stronger after divestment

• In line; maintain Neutral with higher target price of S$1.41 (from S$1.27). 3Q10 results met Street and our expectations with 9M10 DPU of 5.9cts forming 78% of our FY10 forecast. We maintain our estimates and roll over our DDM target price to CY12, raising it to S$1.41 (from S$1.27) with an unchanged discount rate of 7.8%. CCT trades at book value and offers a prospective dividend yield of 5.2%. In our last report, we estimated 7-8% DPU accretion assuming acquisitions of S$800m at NPI yields of 5.6% (which could raise our target price to S$1.46). However, in view of recent Grade-A transactions (Marina Bay Financial Centre and Chevron House) at under 4% net yields, acquiring at our estimated yields and accretion appear difficult, without income support at those levels. Announcements of accretive acquisitions and better-than-expected rental reversions for leases expiring in 2011 would provide re-rating catalysts, in our view.

• YTD DPU up 14% yoy. Despite a marginal decline in YTD revenue of S$299.8m (-0.1%) from loss of income after StarHub and Robinson Point were sold, net property income grew 3.6% yoy on lower property tax and operating expenses. Distributable income of S$145.6m grew even stronger at 14% yoy, boosted by lower interest costs, a result of lower borrowing levels. Stripping out gains from the sale of Robinson Point and StarHub Centre, and asset and derivatives revaluation losses, core net profit grew a healthy 11% yoy.

• Portfolio occupancy up 3% pts to 98.2%, almost single-handedly due to the divestment of StarHub Centre whose occupancy had been around 68%. Occupancy at other buildings was roughly flat with under 1%-pt movements. New leases/renewals for a total of 560,000sf have been signed YTD with tenants primarily in the Banking & Financial Services and Business Consultancy sectors. Average portfolio rents were down 0.7% qoq to S$8.73psf, excluding StarHub (S$8.79psf in 2Q10).