CCT – CIMB

Positive reversions held up distribution

• In line. 2Q09 results were in line with Street and our expectations. Net property income of S$73.3m was up 42% yoy and 5% qoq, aided by strong rental reversions and improved operating margins. Distributable income for 2Q09 was up 33% yoy. However, DPU of 1.7cts (24% of our full-year forecast) declined 34% yoy due to a bigger unit base after its rights issue. 1H09 DPU of 3.33cts was in line with
expectations, forming 47% of our full-year estimate.

• Reversions remained 45% above the last signed. Reversions for office rents were 45% above previous rental levels. Average monthly passing rents for the portfolio rose 5% qoq to S$8.14psf from S$7.73psf in 1Q09. Management commented that while typical lease periods remained three years, there were a few negotiations for longer leases such as five years. There was also increased interest
from prospective tenants from outside the CBD to take up core CBD space as market rents had come down substantially.

• Portfolio occupancy down 0.5%. CCT’s portfolio occupancy dipped to 96.2% from 96.7% in the last quarter. We observe more significant weakening at Golden Shoe Carpark (-6.4%), Bugis Village (-2.9%) and One George Street (-6.6%). On the other hand, occupancy at Market Street Carpark (+29.2%) and Wilke Edge (+5.6%) improved much, holding up overall occupancy.

• Asset leverage down to 31%. On 3 Jul 09, CCT repaid S$664m of borrowings, which brought its asset leverage down to 31% from 42% as at 30 Jun 09.

• Maintain Underperform and DDM-based target price of S$0.76 (discount 10.2%). We expect occupancy to continue to weaken in the year, weighed down by weak demand and strong upcoming supply. Over 2010-11, we expect reversions to turn negative for CCT as rents for expiring leases in two of its major buildings Six Battery Road and Raffles City are significantly higher than current market rents
(S$7-8psf), and anticipated future rents (S$5-6psf). We maintain our estimates and Underperform rating as catalysts in the medium term are still lacking.