CCT – DBSV

Looking for more catalysts

• In line performance, meeting 54% of our FY2012F DPU

• Rents and occupancy continue to be firm

• Downgrade to HOLD on valuation grounds, TP raised slightly to S$1.40

In line performance. Gross revenue and NPI for 2Q12 grew by 5-8% y-o-y largely due the additional contribution from the acquisition of Twenty Anson, as well as higher rental income from HSBC Building and Raffles City Singapore (RCS). Lower property tax, interest cost, as well as interest income from Twenty Anson also helped lift DPU by 7.3% to 2.06 Scts after retaining S$1.3m tax income from Quill Capita Trust (QCT). This brings 1H DPU to 3.96 Scts or 54% of our FY2012 forecast. The trust took in a small revaluation surplus of S$65.8m (+1.07%).

An active leasing quarter. Despite softer leasing activities, portfolio occupancy held steady at 96.21%. In total, the group secured about 180,500 sf, of new leases (50%) and renewals (50%). Monthly signing rents at One George Street was stable at S$9.50 psf and 6 Battery Road at >S$10 psf. The S$92m upgrading works at 6 Battery Road is on track with c.200,000 sf to be upgraded in 2012. Of which, 100,000 sf has been completed and 70% pre-leased. Meanwhile, CCT will be embarking on an asset enhancement initiative (AEI) exercise for Golden Shoe Car Park in 3Q12. The S$0.6m AEI exercise will generate incremental income of S$83,000 or 14% ROI upon completion.

Downgrade to HOLD on valuation grounds. While we like CCT for its strong balance sheet and pro-active leasing strategies, the stock is trading close to our target price, thus we downgrade our call to HOLD. We have nudged up our FY12/13F DPU by c.4 % and TP by 3% to S$1.40 as we lowered the risk free rate while also taking into account higher contribution from the hotel component at Raffles City Singapore, as well as higher takings from Golden Shoe Car Park. Upside risks will hinge on potential acquisitions or better than expected portfolio performance.