CMT – CIMB

Signs of decline

• DPU in line, gross turnover down. 1Q09 results were in line with Street and our expectations. Total distributable income of S$62.6m excludes S$5.9m of revenue which has been retained. 1Q09 DPU of 1.97cts fell 43.4% yoy to form 24% of our forecast for FY09. The yoy decline was due to more units as a result of its rights issue. Gross revenue of S$134.5m was up 11.1% yoy on new contributions from Atrium@Orchard and the completion of asset enhancement initiatives in various malls. Qoq, gross revenue was flat due to a 3.4% qoq decline in gross turnover (all categories affected) as well as a slowdown in reversions.

• Reversion rates slowing. While portfolio occupancy had remained stable at 99.5%, reversions showed the first signs of slowing. Based on 125 leases renewed in 1Q09, average rentals grew 1.3% over preceding rates (typically committed three years ago). This represents an annual growth of 0.4%, below the 6-year average annual growth of 3.2%.

• Asset enhancement for JEC and Atrium still under review. Plans for the asset enhancement of Jurong Entertainment Centre and Atrium@Orchard are still under review. Subject to market conditions and regulatory approvals, work could start at the end of 2009 for JEC and end of 2010 for Atrium.

• No changes to our forecasts; downside risks remain. For the rest of 2009, we expect CMT’s portfolio occupancy to stay rather stable, anchored by its well-located suburban malls. However, with leases accounting for more than 50% of its rental revenue expiring over 2009-10 (21.5% in 2009 and 36.4% in 2010) and possibly worsening unemployment and retail sales, downside risks for rents remain. Maintain Underperform and target price S$0.87, still based on DDM valuation (discount 9.7%).