CMT – CIMB

Cautious consumer spending

CMT’s 1Q14 DPU of 2.6 Sct was in line with expectations at 23% of our and consensus’s full-year estimates. While its portfolio rental reversion of 6.2% suggests that operating metrics remain stable, CMT did report a cautious trend in consumer spending, with shopper traffic and tenant sales down 1.9% and 4.0%, respectively. We think execution on its piecemeal AEIs will increasingly become more important if DPUs are to be sustained. There is also some scope for acquisition growth after the sale of Westgate Office Tower. We tweak our FY14-16 DPU estimates by -1% to 1% and keep our DDM-based (discount rate: 7.5%) target price of S$2.06. Maintain Hold on valuations, with catalysts from accretive acquisitions and upside surprise from AEIs.

Portfolio NPI

CMT’s portfolio gross revenue rose 5.8% yoy in 1Q14, driven by rental reversion of 6.2% yoy (implying c.2% growth in spot rents yoy). Higher occupancy at Plaza Singapura and The Atrium@Orchard and the completion of Phase 1 AEI at IMM Building were the key drivers. However, portfolio NPI growth was lower at 5.5% yoy given higher opex (+7.1% yoy) due to higher property tax at Plaza Singapura, JCube and Tampines Mall. Its 30% stake in the Westgate retail mall (92% occupied) resulted in revenue contribution of S$5.1m.

Slowing tenant sales and shopper traffic

Tenant sales (psf) and shopper traffic declined by 4% and 1.9% yoy, respectively. While CMT’s average tenant occupancy cost of 15.8% as at FY13 is not high compared to its peers, further declines in consumer spending could increasingly limit organic rental growth prospects.

AEI and acquisition growth

CMT plans to embark on 1) AEIs on JCube to reconfigure over 50 retail units and increase F&B offerings, and 2) the next phase of AEI for IMM Building in 2014. Both initiatives should result in higher rents on completion although it is unlikely to significantly lift future DPUs. At an asset leverage of 35.1% (excluding the S$174m proceeds due from the sale of Westgate Office Tower), acquisition growth could be the DPU driver for 2014. We estimate debt headroom of S$470m, assuming 40% asset leverage. Star Vista, a mall owned by its sponsor CMA and valued at S$341m, could be a target.