CCT – DMG

Fairly valued in near term

Limited ro om to drive growth on the back of weak economy. After meeting with the management of CapitaCommercial Trust (CCT) recently, we believe this counter is currently at fair-value with limited upside potential in the short run on the back of slower 2012 economic growth in Singapore. Positive rental reversion, apart from the already signed leases, is also believed to be constrained with MBFC – Phase 2 expected to be completed in 1QFY12. Going forward, we raised our FY11 and FY12 DPU estimates by 3.3% and 1.8% respectively to account for the additional DPU contribution from the new building in 20 Anson Road. Based on our DDM valuation (COE: 8.7%; TGR:2.0%) we maintain NEUTRAL on this counter with an unchanged TP of S$1.38.

Fairly-valued acquisition. The recent purchase of Twenty Anson is expected to add 0.36$¢ to the DPU while the price of S$430m being paid is viewed as fair-valued. Currently, this property is generating a yield of 2.6% with a potential to be increased to 4% when CCT revise the rental rate to the average market rate of S$8.44 psf/month from its current S$6.18 psf/month when 50% and 44% of the property’s NLA is due for renewal in 2013 and 2014 respectively.

Volatile occupancy rate due to AEI. Occupancy rate in Six Battery Road fall to 85.4% in FY11 from 99.7% the year before. Going forward, occupancy is expected to fall with one of its anchor tenant moving out when the lease is due. The occupancy rate at this property is expected to remain volatile until 2013 when the AEI is scheduled to be completed.

Limited room for growth in 2012. Going forward, the positive rental reversion brought about by some of CCT’s properties (e.g. HSBC building) are expected to be offset by the loss in income due to lower occupancy rate in some of its other properties. In addition, with a softer economic forecast in Singapore for 2012, we expect to see strong positive reversion to occur only in 2013. Given limited room for growth in near term on the back of weak economic forecast, we maintain NEUTRAL on this counter at this juncture