CMT – DBSV

Taking a prudent step

• 3Q10 distribution income up a marginal 4.0% qoq, within expectations

• Proactive actions taken to manage FY11 refinancing exposure

• Maintain Buy and TP $2.09

In line with expectations. 3Q10 revenue of $148m was 4.0% higher qoq, while NPI improved by 2.5% to $101m. Performance was boosted by the additional income from Clarke Quay, acquired in early July 2010 and a more robust leasing environment. Renewals and new leases totaling to 247,891 sf, contributed an incremental $1.5m to topline on positive rental reversion of 2.1% yoy while portfolio occupancy was up 0.1ppt qoq to 99.6%. Footfalls at CMT’s malls increased by 3.2% yoy on the back of improving consumer sentiment and tourist arrivals. Gross turnover psf grew 5.6% YTD. Distributable income improved 2.8% to $75.2m (DPU: 2.36cts) based on c95% payout ratio as the group retained $10.1m of tax-exempt income from CRCT to be paid out in FY11.

Mitigating refinancing risk in 2011. In FY11, the group will face 2 major refinancing exercises comprising $346.4m share of Raffles City CMBS and the $550m CBs with a put option in July 2011. To manage potential DPU dilution from the premium payable on the CBs if/when it gets put, the group had deferred payment of tax-exempt income from CRCT into next year and is currently reviewing its refinancing options. While we expect interest expense to rise post loan roll-over, this is likely to be partially mitigated by cheaper funding sources for its CMBS. Operation-wise, 4Q earnings are likely to be lifted upon the completion of its AEI works at Raffles Place from Oct and positive rent renewals from the remaining 6.9% of NLA this year.

Maintain Buy. We are adjusting our FY10 and FY11 DPU to reflect the push back of CRCT’s dividend income. We believe CMT will continue to be one of the main beneficiaries of rising retail sales given its major estimated 25% share of retail space in Singapore. Our DCF-backed TP of $2.09 translates to an FY11 yield of 5%. We maintain our Buy call on CMT with a total return of 8.5%.