CCT – DBSV

Driven by positive rental reversion

• YoY growth from rental renewal upside and 20 Anson contributions
  
• Low gearing and strong balance sheet give room for inorganic growth potential
  
• Maintain HOLD, TP S$1.72
  

Highlights

Earnings in line, boosted by positive rental reversion and 20 Anson. 1Q13 topline of S$96m was up 10% y-o-y on additional contributions from 20 Anson and HSBC rent reversion but down 1.2% sequentially, dragged by lower occupancy at Capital Tower. A total of 410ksf of NLA was leased/renewed in 1Q, bringing portfolio occupancy to 95.3% while average monthly passing rents improved 2.5% to an average of S$7.83psf. NPI was up 7% y-o-y (down marginally q-o-q). Income available for distribution grew 5.7% y-o-y but with the retention of S$2.7m, distributable income came in at S$55.7m or a DPU of 1.96Scts.

Our View

Earnings momentum to moderate this year. CCT would continue to benefit from positive reversions for its renewal leases as well as value add created from its AEI at 6 Battery Rd and Raffles City. The trust has a remaining 11.2% of income to be renewed this year and a further 19.1% next year. With expiring rents below current market levels, we expect the trust to be able to expand its rental earnings. This will be offset by the drop-off in yield protection from OGS from July 13. Focus on boosting occupancy level at Capital Tower should also provide further upside to earnings.

Low gearing. Gearing remains at 30.1% and the trust has only S$50m of refinancing due this year. This would provide significant headroom to look for inorganic growth opportunities.

Recommendation

Maintain HOLD. We have raised our TP to $1.72 on a slightly lower beta assumption of 0.82x, given the relatively long WALE of leases. Upside risk from OGS and Capital Tower as well as better-than-expected news of leasing performance at CapitaGreen, scheduled to complete by end 2014, could provide upside catalyst for the stock. At the current price, the stock offers FY13/FY14F yields of 4.7-4.9%.