CCT – CIMB
Divestments to come
• Results in line; maintain Underperform. Full-year results met Street and our expectations (101% of our estimate). Changes in our assumptions, reflecting more positive occupancy and lower cost of debt, raise our FY10-11 DPU estimates by 8-13%. We also introduce FY12 estimates. Following our upgrade, our DDM-based target price rises to S$1.09 from S$1.01 (discount rate 8.1%). Nevertheless, maintain Underperform as we expect negative rental reversions to set in from FY10. Possible re-rating catalysts could come from any positive portfolio repositioning, to improve the asset quality in its portfolio.
• Full-year DPU of 7.06cts (CIMB-GK 7.02cts). DPU declined 35.8% yoy due to increased units from a rights issuance in 2009. Net property income of S$300.2m was up 28.6% yoy mainly on positive rental reversions, full-year contributions from One George Street and Wilkie Edge and lower property-related expenses.
• Robinson Point sale to reduce exposure to non-Grade A assets. CCT announced a sale of Robinson Point to AEW Asia. The sale price of S$203.25m (S$1,527psf) is 11% above the property’s valuation of S$182.5m (S$1,370psf) and 70% above CCT’s purchase price of S$120m (S$901psf). Proceeds will be used to acquire Grade A assets although the time line for such acquisitions remains vague. The next asset under review would be StarHub Centre at Cuppage Road. The Urban Redevelopment Authority has given outline planning permission to change the use of this property from commercial to residential.
• Changes to our assumptions. We view the divestment of non-core assets positively and are less pessimistic on the degree of rental and occupancy erosion in 2010 in view of good progress in forward renewals, CCT’s ability to sustain occupancy and rents, and Singapore’s economic outlook. We raise our occupancy assumptions for CCT’s top-4 office buildings to 98-99% (from 92-100%); and lower our cost-of-debt assumptions to 4% (from 4.8%) in view of a much strengthened balance sheet after the divestment. Asset leverage following the sale of Robinson Point is expected to fall to 31.1% (from 33.2% as at Dec 09).