CMT – DBS

Retail unit management changes

Story: In a round of management changes at both CMT and CRCT, Mr Pua Seck Guan has resigned as CEO of CapitaMall Trust Management Ltd (CMTML), citing pursuit of personal interests as the reason. The leadership of CMTML will be transferred to Mr Lim Beng Chee, who will in turn relinquish his position as CEO of CapitaRetail China Trust Management Ltd (CRCTML) to Mr Wee Hui Kan, currently the Deputy CEO of CRCTML. Mr Lim who is currently the Deputy CEO of Capitaland Retail (CRTL), will also assume the role of CEO of CRTL from 1 Nov 2008.

Point: We expect the change in management to be effected smoothly given that Mr Lim has been with Capitaland since 1999 and was instrumental, together with Mr Pua, as key drivers of Capitaland’s growth as a leading retail mall manager and owner in Asia. In addition, Mr Lim was also involved in the formation and growth of the two retail reits, CMT and CRCT. We believe CMT would continue to enjoy its pole position as the largest retail S-reit with an ability to execute its asset enhancement activities.

Relevance: Share price of CMT had held up well in the recent market rout. Current valuation of 5.4-5.5% FY08 and FY09 yield appears relatively expensive in view of the hefty 200-300bps premium over its comparable peers’ yields of 7.4-8.4%. We downgrade the stock to Hold largely on valuation grounds, given the small 6% upside to our target price of $2.85. The significant trading yield spread premium over other retail S-reits and current volatile market conditions may likely cap the short-term performance of the stock. Catalyst for share price performance of the stock could likely depend on newsflow on potential acquisition of new properties in the pipeline.