We are recommending a Trading Buy call on CCT, with Target Price at $1.00.Our preferred mode of entry is via the rights shares, due to the gearing effect. While we are cautious on the office sector due to the impending supply (~10m sq ft) coming onstream over 2009-2012, a 14% increase in the existing office stock at a time of negative office space demand, the investment case on CCT rests on the following:
Post-rights issue, the balance sheet has strengthened with gearing brought down from 43% to 30%, enabling the REIT to better withstand further decline in rentals and capital value.
Company has a portfolio of prime office assets with a good spread of anchor tenants pre-committed at low rental rates and unlikely to leave.
P/Book of 0.6x is in line with other office landlords (ie Singapore Land), despite CCT having written down portfolio value by 10% in the May revaluation exercise. Office landlords have been relative laggards in the market rally.
Stock is off 10% in the past 5 trading sessions, and currently trades at only 10% premium to theoretical ex-rights price of $0.825, compared with other Temasek/Capitaland-sponsored rights issues which have performed much more handsomely with premium of 20% or more.
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