CMT – DBSV

Journey to the West

• 2Q13 results in line
  
• AEI works at Bugis Junction to complete by 4Q13
  
• Management in the midst of repositioning Jurong malls
  
• Maintain HOLD, TP S$2.20
  

Stable performance. CMT recorded 2Q13 revenue of S$183m (+10% y-o-y), NPI of S$126m (+12%) and distributable income of S$88m (+10%), translating to 2Q13 DPU of 2.53Scts, and 4.99Scts for 1H13. This increase was attributable to contribution from the completion of its AEI activities at JCube, Bugis+ and The Atrium@Orchard, offsetting weaker rental income from IMM and Plaza Singapura due to ongoing AEIs and the loss of an anchor tenant respectively. Portfolio reversions remained stable at c6.4%, in line with trends for the past 3 years. Occupancy edged up to 99.1%. CMT also reported a slight uptick in valuations for its properties, owing to a c15bp compression in cap rates for certain retail malls.

Further works to enhance portfolio. Bugis Junction has begun AEI works after anchor tenant BHG returned c.70k of NLA. The Manager intends to reposition and replace the space with specialty shops which are expected to yield higher rental income. Phase 1, which comprises c.50-60% of the AEI space, will be completed in 4Q13, and management is planning to launch Phase 2 after Chinese New Year and complete by 3Q14.

Repositioning its malls in Jurong Gateway region. Management has taken steps to minimise potential sales cannibalization effect of JEM (which opened in June) on JCube and IMM. Going forward, management has plans to differentiate JCube as a sports and entertainment centre and IMM as a outlet mall. The latter successfully completed its repositioning as an outlet mall in June, and to date there are 51 outlet shops within the mall. Westgate, which is due to open by year end, will add c.402k sqft of retail space to the Jurong area, bringing total new supply in the area to nearly 1msf. Whilst we are optimistic that the malls will benefit from the Jurong Gateway clustering effect, we are wary of the supply overhang in the short term, which could dilute tenant sales and footfalls. However, this should stabilise with population growth within the vicinity and the completion of new offices in the coming quarters.

Maintain HOLD, TP S$2.20. We have adjusted our TP down as a result of increasing the risk free rate assumption to 2.65% from 1.8%, and increasing long term cost of debt from 3.2% to 3.5%, as per guidance from management. Given limited upside, our HOLD call is maintained. CMT offers forward yields of c5.0-5.6%.