CMT – CIMB

Could be cheaper

• In line. 4Q08 results were in line with Street and our expectations. 4Q08 and full year DPU were 3.65cts and 14.29cts respectively. Full year gross revenue of S$510.9m was up 18.3% yoy mainly on contributions from Atrium@Orchard and Raffles City. Portfolio occupancy improved marginally to 99.7%, up from 99.6% in the last quarter.

• Cap rates, asset values up. As at 1 Dec 08, CMT saw a marginal 1.9% increase in its asset values across its portfolio over their last valuation on 1 Jun 08 despite moderate cap rates expansion by 15 to 25 bps. With this valuation, asset leverage remained unchanged at 42% from the last quarter.

• AEI updates. Sembawang Shopping Centre which had been closed since early 2007 for asset enhancement works opened on 22 Dec 08. NLA had increased by 32% to 128,241 sf; whilst average monthly rents increased 48.8% to S$7.41psf. Todate, 98% of the NLA has been committed. Separately, asset enhancement works at Lot One Shoppers’ Mall were also largely completed. NLA had increased 6.6% to 216,982sf whilst average monthly rents had increased 20.5% to S$12.10psf.

• The billion dollar headache…CMT has S$986m of debt due for refinancing this year. This is some 31% of its total debt of S$3.2bn. Cash and committed credit facilities are sufficient to pay off only S$110m or 11% of the debt due in 2009. Due to the large quantum of the debt and relatively high leverage of 42%, management is likely to have to resort to both recapitalisation and debt to complete the refinancing. We are of the view that, with no changes in regulatory policies, the management is not likely to reduce payout of dividends to repay debt as the total distributable income of S$238m is only 24% of 2009 debt.

• Maintain Underperform, lower target price of S$1.66 (from S$1.90). We further cut our estimates assuming a 10% drop in rents from Atrium@Orchard and lower growth rate of 2% from CRS and the subsidiary portfolio. Our DPU falls 13-16% over 09-10 to 13.12cts and 12.01cts respectively. We also introduce our FY11 DPU estimates. Although CMT’s price has declined 31% from its last peak of S$2.18 in Nov 08, leading P/BV to fall from 0.9x to the current 0.68x, investors could look to a lower entry point in view of potential recapitalisation and dilution. Maintain Underperform.