CCT – DBSV

Waiting for acquisition catalyst

• 3Q10 distribution income up a marginal 1.0% qoq, within expectations

• Portfolio occupancy to remain high with limited rental reversion upside

• Maintain Hold with TP S$1.47

Within expectations. CCT reported a marginal 2.4% qoq decline in topline to S$97.8m in 3Q10 despite loss of income from Starhub Centre, sold in mid Sept 2010. Performance was underpinned by robust leasing activities in its remaining properties, which boosted portfolio occupancy by 2.6% pt qoq to 98.2% with an additional 138,000sf of new take up. NPI increased by 2.8% to S$76.3m due to lower property expenses (-17.2% q-o-q) and distributable income remained stable, rising by 1.0% to S$56.2m (DPU: 1.99Scts) on reduced borrowing costs (-6.3% q-o-q). For the 9M, the group achieved DPU of 5.89Scts.

18.3% leases expiring in 2011. While leasing activities had focused on newer properties in 1H10, we believe that rental attention could shift back to existing prime buildings, as the next wave of new developments would only be ready late next year. As such, going forward, we think that CCT's high portfolio occupancy would remain intact. Although rental rates have started to strengthen, CCT's rental revenue is likely to see limited reversion upside as leases expiring in 2011(18.3%) were transacted at about $11-16 psf pm vs current prime rents and Grade A at S$7.4 psf pm and S$9 psf pm respectively. Asset enhancement activities for 6 Battery Rd will commence in Nov 2010 and be carried out in phases till 2013. Upgrading works will coincide with StanChart's plan to downsize their space occupation by 70ksf and some potential replacement candidates have already been identified.

Maintain Hold. We are revising our DCF-backed TP to $1.47 as we roll our numbers forward into FY11. Meanwhile, asset divestments have lowered gearing to 31.5%, putting them in good position to undertake new acquisitions. However, we think rising capital values could post a hurdle to making immediately accretive purchases. With no near term catalysts, we maintain a Hold call with TP of $1.47