CMT – GS
CAPITAMALL remains a BUY
– CMT said on Thursday that it has earlier received planning permission from the Urban Redevelopment Authority for Funan DigitaLife Mall to erect a 9 storey commercial building utilizing GFA of approximately 385,000 sf. CMT’s manager is, however, appealing to URA on an alternative waiver scheme so as to achieve a more efficient floor plate for the proposed development of an office block and to minimize disruptions to the retail tenants. We continue to have a positive bias on the stock, as CMT has shown a remarkable track record in generating incremental earnings growth from its portfolio of assets.
– Analysis . The addition of space at Funan has always been a possibility as CMT had during its IPO in 2002 said that this property, which was part of its initial portfolio, had unutilized GFA. We think given the existing shortage of CBD office space in Singapore, it is timely if CMT quickly brings on additional office space at Funan, which is located within the CBD. Assuming building efficiency of around 80%, we estimate the addition of space can generate some S$30 mn in revenue a year, almost 7% of our FY2007 forecasted revenue, on rentals of approximately S$8 psfpm. We do not see this addition of office space at Funan diluting the predominantly retail mall flavor of CMT. Also, we think this trust has enough debt capacity to fund the addition of new space even though the impending addition of 3 malls should raise the gearing for CMT from 37% to 41%.
– Implications. We await the details on the costs, timing and plans for the new office space at Funan and as such we put our earnings estimates and target price under review. We continue to like CMT’s top quality management plus its attractive organic and acquisition growth prospects. On current valuations, CMT trades at a 3.3% dividend yield. Risks include the inability to continue executing on growth via accretive acquisitions and an interest rate spike.