CMT – JPM

3Q09 results above expectation, AEI to restart

• CMT announced 3Q09 results, DPU of S$0.0235/unit, annualizing 5.4% yield. The trust retained 3.2% of its distributable income for 4Q09. Distributable income YTD hit S$213million, 4% ahead of our estimates and consensus estimates on the back of better than expected rental income. We have therefore raised our DPU estimates by 4 – 5% for 2009 – 2011. Stock will trade ex-3Q09 distribution on 28 Oct 09.

• Raffles City AEI announced. The trust re-started its AEI program after putting it on hold for a year. Management intends to create a new underground link at basement 2 of Raffles City and to reconfigure its basement 1. CMT planned to spend a total of S$33mil capex targeting 8% ROI for this AEI, and we estimate a 1% accretion to CMT’s FY11 DPU. In addition, the trust is in the process of planning for a complete refurbishment of Jurong Entertainment Centre (JEC), and we expect a detailed plan, including required capex, to be announced in 4Q09.

• Short term volatility expected. With CapitaLand undergoing its proposed restructuring of its shopping mall business, we believe CMT’s share price is likely to remain volatile in the short run, especially as investors make up their mind to the specific risk/return profile they are seeking. We believe, however, that CMT will remain as the liquid proxy for Singapore retail real estate, offering a stable return profile. In addition, with its portfolio size now at S$7bn, the trust has the capacity to take on small development projects, and we would watch out for the upcoming tender (10th Nov 09) for Clementi Mall, a semi-completed suburban mall at the Clementi Bus Interchange.

• We reiterate our OW rating, and raise our Dec-10 DDM based price target to S$2.00/unit. Key risks to our rating and price target include a worse than expected rental reversion and long term rent growth; or a
re-tightening of the credit market.