Downgrade to Sell (3M), TP cut to S$0.80 – We have reduced our DPU estimates to reflect our latest view on the office sector following the 28% plunge in prime grade A office rental to S$10.75psf in 1Q09, although it was partially offset by lower interest expense. We expect prime grade A office rentals to fall to $5psf. We downgrade the stock to Sell (3M) from Buy (1L) given the increased likelihood that CCT will do a rights issue.

Risk of capital raising – CCT maintains their stance that they will explore all options and that whether they would consider a rights issue will depend on market conditions. Given the fast-falling office rental and the likelihood of rising gearing ratio with falling asset values, we think there is a significant risk that CCT may do a cash call.

1Q09 results ahead due to lower interest cost – For 1Q09, CCT reported a DPU of 3.24 cents, equivalent to approximately 28% of consensus and our estimates of 11.1 cents and 11.5 cents respectively. Net distributable income came in better than expected due lower-than-expected interest expense.

Revenue flat, NPI up on cost savings – Operationally, rental revenue was flat from 4Q08 but it was boosted by the full quarter contribution from Wilkie Edge. Excluding Wilkie Edge, rental revenue was down S$1m (or 1%), led by a 8% decline in rental revenue at Raffles City. However, its NPI was up 6% with significant cost savings in particular at Raffles City. 6 Battery Road and Raffles City saw a 1 percentage point drop in occupancy although Robinson Point improved 5 percent points to 95.9%.