CMT – DBS

More of Funan Digilife in store

Unutilised GFA paves the way for development plan. Asset enhancement plans are continually unwrapped by CMT, creating value to its portfolio on a consistent basis. This time, it centres around 385,000 sf of unutilised GFA of derived from a maximum plot ratio of 7x. This paves the way for further value creation opportunities for CMT on top of the various asset enhancement initiatives as discussed in our previous note on various assets under its portfolio.

Office extension in store. As revealed by CMT recently, its planning application has received provisional approval from URA, paving for the development of a nine-storey commercial building as an extension to the existing retail mall. To achieve a more efficient floor plate for the proposed new office block extension, CMT is appealing to URA for an additional waiver. We expect CMT to disclose more details for this new development soon as the latest edition of a consistent string of AEI initiatives, pending finalisation of details with URA.

Preliminary assumptions. Assuming S$400 psf development cost for the office extension fully funded by debt with 80% efficiency of floor plate, we expect this piece of asset enhancement to be highly accretive ROI of 15% on book costs of development (inclusive of DC) based on our estimates. We expect DPU accretion of 6% to our 2011 DPU estimates, assuming a three-year development time frame.

Raising TP to S$4.31. Factoring the potential addition of Funan Extension to CMT’s portfolio, we derive accretion of 24 cents to our DCF-based target price of S$ 4.31 (inclusive of surplus on CRCT stake). Maintain Buy on CMT, in our view the primer of S-REITs supported by consistent performance in organic growth, asset enhancement initiatives as well as acquisitions-driven growth reinforced by alternative channels of acquisition pipeline.