CCT – DB

Divesting Starhub Centre for S$380m

Second divestment this year. CCT announced the sale of Starhub Ctr, a non-grade A office off Orchard Rd for S$380m (S$1,140psf GFA) to Frasers Centrepoint through a private tender following an expression of interest. FCL, which owns the adjacent Centrepoint SC has a strategic benefit and intends to redevelop the building into a high-end mixed residential & retail. With CCT’s focus on the office sector, mgmt has decided not to participate in the redevt and expose CCT to residential devt & market risk. Starhub Ctr contributes 4% to NPI & 5% to portfolio value.

Sale price of S$380m marginally ahead of S$368m forecast and is 42.5% above its latest valuation of S$266.7m resulting in a net surplus of 109.m (3.9cts/shr) and a 2.9% boost to book NAV to S$1.41. Mgmt plans to use the net proceeds of S$375.8m for acquisitions and/or to repay debt. Depending on how the proceeds are utilized, impact to FY11/12 DPU & DDM ranges fr -4.3% (if proceeds are retained as cash) to marginally positive +1.6% (if debt is retired). With an implied exit yield of 3.2%, redeployment of proceeds into higher yielding assets would be accretive.

Strategically positive but capital redeployment crucial. We see this as a strategically positive move to crystallize value fr its portfolio & could focus attention on its underlying NAV. However, we think capital deployment is crucial to offset the earnings dilution. With its enhanced financial flexibility, CCT is well positioned for acquisitions with c.S$1.78bn in debt funded capacity (incld sales proceeds of S$579m YTD) if it gears up to 45%. Its spare balance sheet capacity also enables it to undertake the redevt of Market St Car Park, a valuable opportunity in our view given falling construction costs & DC rates. Maintain Buy with valuations undemanding at 5.6% FY10e yield and 11% disc to RNAV.