CMT – DBSV

Work in progress

• In line with expectations

• Atrium AEI works at its tail end, pre-commitment on track; Westgate secures pre-commitments

• Maintain Hold at an unchanged TP of S$2.10

Highlights

Results in line. Gross revenue and NPI grew by 4-5% y-o-y supported by healthy rental reversion, and increased contributions from completed asset enhancement projects offsetting lower contribution from The Atrium and IMM. Reversion rates remained healthy at 6.1% (1Q12 and 1H12: 6.1 -6.4%) supported by high occupancy rate of 98.4%. Meanwhile, another S$5.9m received from CRCT has been retained, bringing YTD receipts to S$11.3m. These are likely to be kept for working capital purposes. Distributable income rose by a marginal 4.5% y-o-y, translating to DPU of 2.42Scts.

Our View

Pre-commitments for the malls on track. Leasing progress for Bugis+ remains healthy at 98.5% as at 3Q12. The AEI works at the Atrium is also coming to a tail end and is expected to open as early as November. Pre-commitment for the retail space has improved from c.71% last quarter to 80%. Meanwhile, the group has also started marketing the retail space at Westgate and has already secured some pre-commitments including Isetan’s c.60,000 sf space (c. 14% of the mall’s space).

Some downtime in occupancy expected. Phase 1 of IMM’s AEI works amounting to c.40,000 sf of space has commenced and is expected to complete by end of the year, while Phase 2 is commencing soon and will complete in April next year. Occupancy has dipped to 95% and we expect it to trough at c.85% in 1Q13. Elsewhere, the space occupied by Carrefour (c. 81,000 sf) at Plaza Singapura will be vacated in November and the reit is looking for a replacement tenant. Hence, occupancy could see some downtime.

Extending its debt maturity profile. Gearing remains healthy at 67.6%. Refinancing for its 2012 loan has also been completed with longer term loans, which would help to extend its debt maturity profile.

Recommendation

Maintain Hold. While we like CMT for its leadership in the retail market sector and the ability to drive positive rental reversion via AEI works, we believe most of the positives have already been priced into the stock. We have nudged down FY12/13 DPU by c.1.5% to account for the lower occupancies with DCF-backed TP unchanged at S$2.10. Upside risk for share price performance of the stock could likely depend on newsflow on potential acquisitions of new properties in the pipeline.