CMT – JPM

Steady as she goes

• A liquid proxy to SREITs that offers stable return. CMT, being the largest and most liquid S-REIT, should offer a total return of 11% for the next 12 months on our estimates, which compares to S-REITs
sectoral average return of about 7%. We believe that the low risk – stable return profile coupled with the potential for further DPU upgrades make CMT an appealing stock, especially for investors with a low risk appetite.

• Asset enhancement & redevelopment to drive organic growth. The trust restarted its AEIs program in 3Q09. The upcoming announcement of Jurong Entertainment Centre redevelopment and Atrium @ Orchard AEI plans, which are likely to uplift FY11E and FY12E DPU by 4-5%, would be the near-term catalyst for any potential earnings upgrades. In addition, as retail sales picks up, we could potentially see increases in GTO rents, especially from the non-discretionary tenants.

• Catch-up in relative performance. CMT has underperformed the sector by 4% since the listing of CMA, as investors rebalance their exposure according to their risk appetite. The stock is currently trading at an undemanding valuation of 1.15x historical book and 265bps yield spread to 10-year government bond. In addition, we believe that the listing of CMA has further strengthened the retail platform for the trust.

• We reiterate our Overweight rating on CMT, with a Dec-10 DDMbased price target unchanged at S$2.00/unit. Key risks to our rating and price target include worse than expected operating performance
including lower rental renewal rate and occupancy rate, or a retightening of the credit market.