CCT – CIMB

Pricing in bright prospects

CCT posted 2Q14 revenue growth of 3.2% and distributable income growth of 7.6% yoy. At half-time, the group’s results made up c.50% of our full-year estimates. CCT’s growth will be driven by the modest recovery in the office rental market as well as new contributions from CapitaGreen starting FY16. We have tweaked our FY14 DPU by 2% to 8.3cts to reflect a slightly better reversion outlook. While we remain upbeat on the office sector, given CCT’s

current 1x P/bk NAV multiple, we think much of the optimism has been factored in. We maintain our Hold call, with a revised DDM-backed target price of S$1.63 as we roll our numbers forward.

In line

Q2 distributable income was lifted by higher revenue, lower interest expense and the release of S$2.35m in retained tax exempt income. Gross revenue rose 3.2% yoy to S$65.8m, thanks to a 3.4% expansion in average portfolio rent on the back of positive reversions as well as high occupancy of 99.4%. CCT signed 97.5k sf of NLA of new and renewal leases largely from the financial services tenants in Q2. NPI rose 3.5% to $52m from a year ago due to lower ad hoc maintenance and marketing fees. Book NAV rose 1.8% to S$1.67/unit, largely coming from revaluation of CapitaGreen.

Brisk leasing activities

The Singapore office rental market continues to improve modestly amid tight supply in the CBD. CCT has a remaining 19% of portfolio rental income to be renewed in FY14, the bulk of which is pre-committed. Take-up at CapitaGreen has also improved to 23% of NLA to date and we expect the building to be at least 40-50% pre-leased when completed by year end. Another booster to income would come from Capital Tower and Raffles City Tower post completion of AEI works. Potential dilution from the remaining S$43.75m of CBs due FY15 (exercise price at S$1.23) is expected to be a marginal 1% and have been reflected in our numbers.

Maintain Hold

Although we maintain an upbeat view on Singapore’s prime office rental market, at 1x P/bk NAV multiple and an implied FY14 NPI yield of 3-3.5%, we think CCT is fairly priced at present.