With proactive tenant management, CCT signed new leases and renewals for an NLA of 139,380 sq ft in May and June 09, achieving new rents about 45% higher than the previously signed rents. CBRE estimates the average rent for prime Grade A office to be $10.15 psf in 2Q09 - higher than CCT’s passing rent of $8.14 psf. This implies that there could still be positive rental reversion for the rest of 2009.
CCT has managed to maintain its portfolio occupancy rate above the market average. It has a current Grade A occupancy rate of 97.4%. The management however, warns that there could still be some downside to occupancy rates, but it also noted that some businesses are looking at relocating back into the CBD as rents appear more attractive at current levels.
In 2Q09, Singapore registered a real GDP growth of 20.4% q/q, and the Singapore government revised its full-year forecast upwards to between -4 to -6% contraction from between -6 to -9%. In line with the economy, business sentiments appear to be improving, easing the rate of decline in office rents.
While we still like CCT for the quality of assets and the sound balance sheet following the rights-issue, CCT looks fairly valued and its forward yields of under 9% do not appear particularly attractive, given that the office sector is not completely out-of-the-woods. Maintain HOLD, with a DDM-derived target of $0.88.
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