CMT – CS

Acquisition of Atrium@Orchard

● CMT announced the proposed acquisition of Atrium@Orchard for S$839.8 mn (total acquisition cost S$850 mn) or S$2,249/sq ft. The acquisition is expected to be completed by end Aug 08, and will be integrated with Plaza Singapura (PS) to provide ~170m of prime retail frontage and a combined c.600,000 sq ft NLA of retail space.

● The acquisition is to be funded by S$650 mn CB issuance and MTN proceeds, implying a cash cost of debt of ~1.6% (using 1% coupon rate) to justify the low asset yield of 2.1% for a marginal yield accretion of +1.0% to our 08E DPU at injection. The average cost of debt of 2.75% (using assumed YTM 2.5%), however, implies a potential dilution of 3.0%. Despite that, the acquisition is for strategic reasons, in our view, both geographically and also to lift the yields of the two properties in synergy.

● We believe the attractiveness of the acquisition will pivot on the AEI pending announcement on details. Upon completion, CMT’s gearing will be lifted to 45% and is likely to raise equity for the acquisition of ION orchard in FY09, although ION will draw a greater appeal, we believe. For now, we maintain our estimates. We believe the acquisition will strategically enable CMT to have key presence in downtown core along four adjoining MRT stations (incl. ION Orchard), with Dhoby Ghaut station serving 3 MRT lines by 2010.