CMT – Kim Eng

Sowing the seeds for organic growth

Event

• CapitaMall Trust (CMT) announced a 2Q10 DPU of 2.29 cts, resulting in a 1H10 DPU of 4.52 cts, in line with expectations. CMT’s net property income for FY10 improved by 5.5% yoy to $196.4m, mainly due to decreased operating expenses. CMT will also be considering development projects for selective participation. Maintain BUY.

Our View

• CMT continued to deliver a steady set of results, with 1H10 distributable income growing by 13.5% to $153.7m. It also enjoyed positive rental reversion, with new rents or new leases being signed at 6.3% higher than the preceding rates on average.

• Despite the opening of new malls, CMT’s portfolio occupancy rate remained at a robust 99.5%. AEI works at Raffles City and the redevelopment of JCube are now underway. CAPEX requirements for JCube’s redevelopment have been revised down by $35.3m to $165m due to savings in construction cost. CMT also aims to undertake AEI for The Atrium@Orchard from 1Q11 to 3Q12, which would lift CMT’s DPU from FY12 onwards.

• CMT has no immediate refinancing needs in the next 12 months. Management is open to selective participation in Greenfield development projects. This was demonstrated by its joint bid with its sponsor, CapitaMalls Asia, for the recent tender of a White Site at Jurong Gateway Road, which narrowly came in second. Based on the Property Fund Guidelines, CMT could undertake development projects valued at about $780m (or 10% of its deposited assets).

Action & Recommendation

The recently acquired Clarke Quay will start contributing in 2H10 and the rest of the portfolio should continue its consistent performance. Maintain BUY with a DDM‐derived target price of $2.23.