CCT revalued its portfolio downward by 10.1% to S$6.0bn. On an individual asset basis, valuation declined between 3-16%. Cap rates used by valuers remained largely unchanged. Management revealed that valuers have factored in between a 47-70% decline in rental rates from the peak in mid-2008 to 2012. Based on our FY09E NPI, the implied cap rate for the portfolio is 4.6%.
Post the rights issue and asset writedown, CCT’s gearing will be reduced from 43% to 31%. NAV will be diluted by 38%, falling from S$2.42/share to S$1.51/share. Dilution from the new shares on issue as well as interest savings will reduce our FY09E-FY11E DPU by ~32%. Assuming a further 20% write down of asset values this cycle, we see CCT’s NAV falling to S$0.77/share.
We maintain our view that the office market is in a multi-year downturn. We expect the market to trough in 2011 and in 2012 net absorption to return to positive, bringing rental rates back to normalized levels. With the increase in our long-term rental assumptions, we raise our PO to S$0.75 from S$0.65. However, given our expectation that the office market will not show signs of recovery until 2012, we expect CCT will continue to underperform. Post rights, our PO would be S$0.64.
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