CCT recently announced that it had refinanced the outstanding balance of its convertible bonds due 2013 with a new S$175m CB issue due 2017. The new 2017 CB has a yield to maturity of 2.5% (versus 3.95% for the 2013 CB), and would yield net proceeds of S$171.9m, of which S$141.1m would be paid for the 2013 bonds (total of S$126m face value) priced at 111.30 and S$20.75m for the settlement of a clean-up call at 109.37 expected on 15 Oct 2012. We like that CCT continues to comfortably manage its debt expiry schedule and maintains steady access to capital markets at relatively attractive rates. Maintain BUY with a higher fair value estimate of S$1.62 (versus S$1.53 previously), as we incorporate firmer cap rates assumptions to reflect more benign expectations for the office sector.
Refinanced convertible bonds due 2013
CCT recently announced that it had refinanced the outstanding balance of its convertible bonds due 2013 with a new S$175m CB issue due 2017. The new 2017 CB has a yield to maturity of 2.5% (versus 3.95% for the 2013 CB), and would yield net proceeds of S$171.9m, of which S$141.1m would be paid for the 2013 bonds (total of S$126m face value) priced at 111.30 and S$20.75m for the settlement of a clean-up call at 109.37 expected on 15 Oct 2012.
CapitaGreen and 6BR AEI progressing as planned
We note that construction works for CapitaGreen is progressing well, with construction status currently at 26% (foundation piling) and main works staying on schedule for completion in 4Q14. The S$92m AEI at Six Battery Road is also on schedule; 200k sq ft of space was targeted for upgrading in FY12, of which 49% was completed in the first half of the year.
Office rentals decline likely to slow in 3Q12
We believe that Grade A office rentals are likely to show a more subdued dip in 3Q12 after three consecutive quarters of declines since 3Q11. Over 2Q12, Grade A office rentals fell 4.7% QoQ to S$10.10 which cumulated in an 8.7% decline over three quarters. Core CBD vacancies, however, showed a reversal from a rising trend in 2Q12 to register a 0.9 ppt dip to 8.4%. A similar picture was seen for island-wide vacancy rates which declined 0.9 ppt to 6.4% (end 2Q12) from 7.3% (end 1Q12). We expect a similar trend for vacancies in 3Q12 which would likely contribute to a muted rate of rental decline.
Maintain BUY
We like that CCT continues to comfortably manage its debt expiry schedule and maintains steady access to capital markets at relatively attractive rates. Maintain BUY with a higher fair value estimate of S$1.62 (versus S$1.53 previously), as we incorporate firmer cap rates assumptions to reflect more benign expectations for the office sector.
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