BUY S$1.10
Price Target : S$ 1.49 (Prev S$ 1.59)
At a Glance
• 9M11 DPU accounted for 83% of our FY11 forecast
• Healthy renewals sustain high portfolio occupancy of 97.7%
• Gearing at 27.4%, the lowest among its office peers.
• Maintain BUY at a lower DCF-based TP of $1.49
Comment on Results
Revenue in line with expectations .3Q11 gross revenue and NPI declined by 8.6% and 9.2% yoy to S$91m and S$69.8m respectively largely due to negative rental renewals and impact of the ongoing AEI works at 6 Battery Road. However, Raffles City's robust performance, lower property tax payment and interest savings mitigated the decline. Hence, DPU fell by a smaller 7.8% yoy to 1.83 cents. 9M11 DPU forms 83% of FY11 DPU.
Still healthy take-up rates sustain high occupancies. The trust renewed another 151,000 sf of its office leases in the current quarter, taking year-to-date renewals to about 415,000 sf. Meanwhile, pre-commitments for 6 Battery Road AEI works had also gained traction from 79% a quarter ago to 98% for the 93,700 sf of upgraded space.
Correction in market rents is likely to have minimum impact on performance. While office take-up is likely to moderate and asking rents should see some correction amid current uncertain economic environment, we expect minimum impact on CCT earnings with only 5.5% of office leases (in terms of total gross revenue) due for renewal this year and 9.3% in FY12. Meanwhile, average portfolio office rent in the 3Q remained flattish at S$ 7.79 psf VS the S$ 7.84 a quarter ago.
Recommendation
Strong balance sheet to withstand uncertain times. We like CCT for its strong balance sheet with net gearing of 27.4%, healthy cash reserve and its ability to drive renewals to sustain its portfolio occupancies. Maintain BUY with a lower DCF-based TP of $1.49 as we roll our numbers forward into FY12 and adopt flattish market rental growth for FY12.
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