CMT – CIMB

Flat yields

• Islandwide retail occupancy down marginally. Occupancy of islandwide retail space at 93.4% was down marginally from 93.8% in 4Q08. Retail occupancy in the Orchard and Outside Central areas stayed above islandwide levels.

• Checking out the competition. We visited three of CMT’s competitors recently and conclude that CMT’s malls should be able to stay resilient despite the competition.

• Upgrading our estimates. We are now more positive that the healthy business in CMT’s suburban malls will provide support to rental levels. We change our rent assumptions for most of CMT’s malls to moderate growth of 3-5% for 2010-11, from declines of 5-10%. We also adjust for the number of units in 2009 after the rights issue. Our 2009 DPU estimate drops by 8% while our 2010-11 estimates rise by 12- 25%. Following our changes, our new DDM-derived target price is S$1.26, up from S$0.87 (unchanged discount rate of 9.7%)

• But maintain Underperform. Compared with its peers in the SREIT space, CMT appears fairly expensive at 0.86x P/BV and yields of 6% vs. the sector average of 10.2%. Since its last low of S$1.16 on 28 April, CMT’s share price has appreciated 23.3%. This would be an opportune time to exit a stock with flat yields and a lack of catalysts in the medium term. Maintain Underperform.