CMT – DBS

Office extension, the sequel

Comment on Results

• Revenue and NPI grew by 40% and 45% y-o-y to S$114.5m and S$76.8m respectively. DPU for 3Q07 grew by 19% to 3.4 cts and 9.52 cts.

• For 3Q07, distribution income was retained as CMT continues to dish out Asset Enhancement Initiatives (AEIs). CMT is expected to dish out S$168.6m and S$127.2m for capex in FY07 and FY08 respectively for the whole portfolio. For 3Q07, approx.
S$1.6m was retained by CRCT, which together with the S$4.6m retained in 1Q07, we estimate a DPU kicker of approx. 0.4 cents for 4Q07.

• CMT’s gearing has reached 40%, which suggests an equity raising is imminent for a sizable acquisition. Interest cover remains healthy at 4.9x, and average cost of debt remains stable at 3.5%.

Recommendation

• Apart from decantation of space to create a four-storey retail extension block with 16,500 sf NLA at Lot One Shopping Mall (CRS portfolio), CMT has also announced that URA has granted Tampines Mall a plot ratio increase from 3.5 to 4.2. This creates an additional 95,000 sf of office space, approved for a new office development.

• We are positive on CMT with its consistency in dishing out AEIs, which are integral for the growth of the REIT management business (34% of total DPU growth since listing). With a strong developer sponsorship from CapitaLand, we are also positive about CMT reaching its asset size of S$7bn by FY09. Maintain Buy, target price slightly raised to S$4.34 based on DCF valuation to factor in the announced asset enhancements.