CCT posted a 17.4% yoy growth in its 4Q08 distributable income. Its distribution per unit for 4Q08 is 2.7 cents, bringing FY08 total DPU to 11 cents, representing a 12.8% distribution yield, largely in line with expectations. This came at the back of a robust 40% growth in gross revenue due largely to the acquisition of One George Street and positive rental reversion.

CCT’s management is confident of delivering its forecast DPU of 12.34 cents for FY09, having already locked in 79% of the forecast gross rental income. DPU growth will be contributed by the income from newly completed Wilkie Edge and further positive rental reversions given the low current portfolio passing rent of $7.44 psf.

Following the successful refinancing of the $580m CMBS maturing in March this year, CCT’s management does not see the immediate need for equity fund-raising. The refinancing has freed up 8 assets from encumbrances, valued at $2.7 bn in all. We are of the view that these assets could be pledged against loans of nearly $1bn, even if capital values decline 30%.

CCT’s gearing stands at 37.6%, comfortably under the 60% that is allowed under the Property Fund Guidelines governed by the Monetary Authority of Singapore (MAS) for a credit-rated REIT. The MAS has clarified that if the leverage increased as a result of declining property values, it does not amount to a regulatory breach.

Despite prolonged concerns related to the economic downturn and the looming new office supply, we still like CCT for its strong asset quality and room for positive rental reversion. We have revised our rental forecasts downwards, reducing our target price to $1.64, at the back of a terminal growth rate of 1%. Reiterate BUY.