Why?
- Country risk is minimal as Sg is one of the few surplus countries in the world like Japan, China, Taiwan, Germany, Swiss, Australia etc. very rare indeed. Will not go bankrupt like Hungary or South Korea !
- Underlying assets - are real properties. The Arab has this saying " properties may fall sick but they never die". True prop can never go broke but the owner may if they over-leverage! Like Sands casino or Donald Trump...
- Strength of the sponsor - Capitaland which is controlled by Temasek -the Singapore SWF.Can't imagine if Capitaland will fail. It is the strongest developer in Asia - strong in Chinia, Sg, Australia and growing in Malaysia. Best in its class.
- CCT has a very low average rent of SGD7.44 psf vs SGD15 for prime. Well if rental drop by 50% to 7.50, CCT is still square. Thus in my stress test, i factor in a drop of 25% rental income due to vacancies and drop in rent for some assets, NAV is still above SGD1.50. Thus now at 75c, is at a 50% discount to the 50% revised down NAV !!
- Risk of tenant loss is less than 20% as many are long term lease;and blue chip clients like GIC, HSBC, JP Morgan, RC Hotels etc.
- Only 3 out of 11 properties are secured by loans. Thus 8 of them are free from encumbrances. In the worse case, current NAV for that 8 assets are SGD2.7 bil or abt SGD2 per share. Assume a write down of 25%, revised NAV is SGD1.50 - again same value as above. These 8 assets provide a risk free underlying/base case value for CCT. Thus CCT's NAV can never go to zero.
- Refinancing risk - this is non issue as prime properties offer the best exposure vs business loans or even consumer loans. And Sg banks are not short of liquidity ! Refer to no. 1 and no.3 above.
- CIMB-GK rate CCT as the best deep value S-Reit now !
