CMT – OCBC

UPGRADE TO BUY – RESULTS IN LINE

•4Q results mostly in line

•AEI and Greenfield execution spot on

•Upgrade to BUY

4Q11 numbers broadly in line

CMT announced 4Q11 distributable income of S$75.5m or a DPU of 2.30 S-cents. Cumulatively, FY11 distributable income came in at S$301.6m, in line with our forecast of S$300.3m. Net property income for the year increased 4.8% YoY to S$418.2m, driven mostly by contributions from Clarke Quay and Illuma acquired in Jul10 and Apr11, respectively, and positive rental reversions.

Operating expenses tracking higher

Though we saw FY11 revenue increase 8.5% YoY (3.6% on a samestore basis), operating expenses tracked at a faster rate (up 16.7% YoY or 7.9% on a same store basis). We understand that this came mostly from one-time expenses and also utilities and maintenance costs. Management indicated that they are actively curtailing operating expenses and we expect less aggressive margin pressure in FY12-13.

Lower valuations at IMM and Sembawang Shopping Centre

In terms of fair value adjustments – IMM’s valuation was lowered by S$53m to reflect lower rentals and margins as it transitions further into a bargain outlet mall; and Sembawang Shopping Centre’s valuation was lowered by S$19m to reflect lower rentals expectations.

Management executing well on AEIs and Westgate

JCube is currently 90% committed and we expect asset enhancement initiatives (AEI) at Atrium@Orchard and Illuma to keep on schedule (completion in 4Q12 and 2Q12 respectively). Management also proposed AEI plans for Clarke Quay, recovering space from the anchor tenant at Block C (1/4 of the NLA) to refresh the tenant mix.

Upgrade to BUY

Management’s execution remains solid with new projects tracking closely to schedules. We also like that a substantial portion of income is derived from resilient suburban malls, given an uncertain economic outlook. Upgrade to BUY with a lower S$2.02 fair value (versus S$2.06 previously) with a 12m DPU forecast of 10.0 S-cents.