CMT – DBSV

Illuminating Bugis

• Acquisition to expand portfolio size by 4%, create synergies with Bugis Junction

• Small but positive move, able to grow organically almost immediately

• Maintain Buy, TP $2.08

4% growth in portfolio value. CMT announced it is purchasing Illuma, a retail and entertainment complex at Victoria Street, for S$295m or S$1593 psf, in line with valuations. All-in cost works out to S$299m or S$1614 psf. The mall, spread out over seven floors with 321 carpark lots, has GFA and NLA of 297,399 sf and 185,190 sf respectively. Under the URA guideline, at least 60% of the GFA has to be used for entertainment purposes. The trust intends to fund this purchase using its cash balance of S$713m as at Dec 2010.

Organic uplift immediately. We view the acquisition price as fair, taking into account the shorter land lease and the potential for a quick ramp-up from the initial yield of 3.8%. Current occupancy at Iluma is 83.7% with about 129 tenants. Major tenants include Filmgarde Cineplex, K Suites, Arcadia and Ebisboshi Shotengai. Iluma is connected to Bugis Junction via an overhead link bridge, creating a seamless connection. With a combined NLA of 606,000sf, the manager intends to transform it into a retail destination, a magnet for both locals and tourists in the Bugis area. The mall has a high entertainment component, which could complement CMT’s Bugis Junction. In the near term, we believe the low-hanging fruit could come from raising occupancy levels at the property. Medium term, pro-active asset management exercises will drive returns, which include reviewing tenancy mix as c50% of its leases are expiring over the next 2 years as well as improving property utilisation rate.

Maintain Buy. We continue to like CMT for its execution track record and we believe it will be able to improve Illuma’s property returns in the medium term. We view this deal as positive for CMT’s growth strategy. However, initial impact on earnings and valuation is limited given the modest asset size (c. 2% of FY2011 NPI, 4% of AUM). Maintain Buy with unchanged TP of $2.08.