CMT – UOBKH

Better Value After Share Price Correction

CapitaMall Trust (CMT) has corrected by 7.4% the two days after we downgraded our recommendation from BUY to HOLD. The correction has brought valuation to a more realistic level.

Value creation through asset enhancement initiative. CMT is expected to complete the acquisition of The Atrium in Aug 08. The Atrium will be amalgamated with Plaza Singapura to create an integrated development with 170m of prime retail frontage along Orchard Road and net lettable area (NLA) of over 900,000sf. State land between the two buildings will be covered by shelters to create an open plaza. The asset enhancement initiative (AEI) will also improve traffic flows from the Dhoby Ghaut MRT station.

About 100,000sf of prime retail NLA on Levels 1 and 2 of The Atrium will be created by decanting lower-yielding spaces. Management plans to use some of the additional retail space for duplex flagship stores fronting Orchard Road. Renovation works will be carried out in phases from 2009 to 2010. We have estimated construction cost at S$400psf and have factored in contribution from the new retail space starting 3Q10.

Upgrade to BUY. CMT owns and operates 13 retail malls strategically located in suburban areas and downtown core. It is the largest retail REIT in Singapore with a market share of 13% for private retail stock. CMT has revised its local target asset size from S$8b to S$9b by 2010. We have raised our target price from S$3.72 to S$3.76 after factoring in contribution from 100,000sf of retail space at The Atrium converted from office space starting 3Q10. Upgraded from HOLD to BUY as the stock provides upside of 13.6%.