CCT – DBSV

Continues to deliver

• Results in line, marginal value writedowns

• Improved office demand and rental outlook

• Maintain Hold. Slight adjustment to DPUs which lifted TP to $1.33

Results as expected. CCT reported Q2 distribution income of $55.7m (DPU 1.97cts), up 15.2% y-o-y and 2.1% q-o-q. Net property income rose 1.3% on a mere 0.3% rise in revenue, contributed by marginally higher portfolio occupancy of 95.6%, better rents, lower operating expenses and reduced interest expense. In 1H10, the group has achieved DPU of 3.9cts or 55% of our full year forecast. The group took a marginal 0.5% writedown in its portfolio value to $5.49b, mainly from 6 Battery Rd, Bugis Village and Market St carpark. At this juncture, cap rates remain unchanged from Dec 09 levels.

Leasing demand gains momentum. New and existing tenants are renewing and expanding premises and management appears more upbeat about the rental outlook. The group renewed 442,000sf of leases in 1H10 including notable names such as Credit Agricole, Northern Trust, Accenture. Renewal of a remaining 6.6% of leases this year and a further 20% next year should benefit from the stronger rental market. With the sale of Starhub Centre for $380m, the group’s net gearing level is expected to improve from 32.8% to an estimated 20.8%, hence, providing the financial muscle for new acquisitions.

Maintain Hold. We expect 2H10 to be slightly weaker than 1H10 to reflect income loss from the divestment of Robinson Point and Starhub Centre. We have tweaked our FY10 and FY11 numbers slightly up to 7.2cts and 6.6cts respectively to adjust for non-tax deductible items. CCT is currently trading at yields of 5.4% and 4.9% for FY10 and 11 respectively. Maintain Hold with a slightly higher TP of $1.33. Catalysts, in our view, for the stock remains its ability to pursue yield accretive acquisitions to replenish its portfolio or potential redevelopment of some of its older properties.