CMT – CIMB
Meeting expectations
• DPU in line despite S$1.5m retained. 2Q09 results were in line with Street and our expectations. Total income available for distribution was S$67.1m (+17% yoy). However, actual distributed amount was S$67.9m, including S$1.5m of distributable income retained from 2Q09 in view of economic uncertainties; and S$2.3m of net capital distribution income and net tax-exempt income from CRCT retained in 1Q09. Including the S$3.3m retained in 1Q09, management has retained S$4.8m of distributable income for 1H09. It is committed to distributing 100% of its distributable income for the full year. Hence, the S$4.8m retained will represent an additional 0.15cts for distribution in 2H09. 2Q09 DPU of 2.13 cts fell 40% yoy due to an increase in the unit base, forming 25% of our forecast for FY09. 1H09 DPU of 4.25cts, including retained income, represents 49% of our full-year forecast. Net property income of S$93.8m was up 12% yoy on new contributions from Atrium@Orchard and the completion of asset enhancement work in various malls. Qoq, the income was up 1.5% as positive rental reversions were diluted by higher property tax, marketing and maintenance expenses.
• Occupancy stable at 99.7%; reversion rates flat. Portfolio occupancy stayed at 99.7%, the same as 1Q09. Average rentals grew 1.5% over preceding rates (typically committed three years ago), representing annual growth of 0.5%. Although shopper traffic was 2.2% higher than in 2Q08, gross turnover sales of tenants was only 0.2% higher, indicating more care in consumer spending.
• New-to-market brands in Orchard could be prospective tenants. Management says competition in Orchard Road could be viewed positively as new-to-market brands who would first establish themselves in the prime shopping belt could also be persuaded to take root in suburban malls.
• Maintain Underperform and DDM-based target price of S$1.30. For the rest of 2009, we expect CMT’s portfolio occupancy to be nearly full, anchored by its welllocated suburban malls. However, reversions may turn negative as improvements in retail sales still lag behind. Maintain target price S$1.30, still based on DDM valuation (discount rate 9.5%).