CMT – DBSV

Expect a better second half

At a Glance

• FY11 DPU was 3% below our estimates, after a $5.1m income retention

• Completion of JCUbe and positive rental reversion to offset lower occupancies

• AEI works at Clarke Quay to yield 13% ROI

• Maintain BUY at a lower TP of S$2.05

Comment on Results

Full year DPU is 97% of our forecast. 4Q11 gross revenue rose by 4.3% y-o-y to S$157m. However, a faster increase in opex by 18.5% y-o-y dragged NPI by 2.6% to $98.8m. DPU was 2.3cts after $5.1m was retained. Operationally, the trust renewed 503 leases in FY11 with a positive rental reversion of 6.4% y-o-y on the back of 6.3% increase in tenant sales. However, occupancy fell 1.2 ppts q-o-q to 94.8% due to malls undergoing AEI.

Still a positive rental reversion picture, tapping into more low hanging fruits. Going forward, the trust will enjoy positive reversion, as 26.5% of the leases are due for renewal this year. Most of these leases were signed during the 2009 GFC. In addition JCube is on track to open its doors in 2Q12. Pre-commitments have reached >90%. This should mitigate further downside in occupancies (before picking up in 2H12) as the AEI works intensifies at The Atrium and Iluma. Meanwhile, the trust has announced AEI at Clarke Quay at a worth $15.6m, which will generate a decent 13% ROI. The AEI will commence in 2Q12, to be completed within a quarter.

Gearing at 38.4%, balance sheet remains strong. With S$145.8m revaluation surplus largely from a 15bps cap rate compression, net gearing ratio remained at 38.4%. Funding for the remaining AEI works including project financing for its development project at Westgate have been secured.

Recommendation

Maintain BUY, expect better 2H. We have cut our FY12/13 DPU by 6- 9% to 9.8cts/10.5cts to reflect the frictional vacancies during the upgrading works at its malls. As a result, our TP is cut by 1.5% to $2.05. We continue to like the retail sector and CMT as a market leader in this space is well positioned to weather any economic slowdown.