CapitaCommercial Trust - Basking in a well-timed rights issue

We maintain our (Outperform) rating. We still have a positive view on office-sector S-REITs and believe a stabilisation of the spot-rent decline could trigger another round of outperformance. CCT’s rights issue has helped it to recapitalise, but has also diluted the potential valuation upside, based on our forecasts.

CCT’s S$823m (gross) one-for-one rights issue, announced on 22 May 2009, at S$0.59 per rights unit, has eliminated effectively, in our view, the rights-issue overhang. With a post-rights issue leverage ratio of 30.7%, which captures a 10% asset-value decline (based on 22 May valuations), CCT is now one of the most well-capitalised S-REITs, in our view.

CCT has no debt-financing requirements for 2009, a S$650m (25%) secured term loan and a S$235m (9%) medium-term note (MTN) for 2010, and S$520m (20%) in CMBS (for Raffles City), a S$100m (4%) MTN, and S$370m (14%) of convertible bonds for 2011.

We maintain our RNG-valuation-method-derived target price of S$0.94, based on capitalising CCT’s estimated FY08 core operating distribution (at an average passing rent of S$6.84/sq ft/month) at an effective cap-rate assumption of 6.5%. CCT’s target price to post-rights (pro-forma) BVPS of S$1.51 is 0.62x.

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