CMT – DBS

Enhancements put on hold

Story: 3Q08 revenue and NPI grew by a similar 13% yoy and 3% qoq to $129.7m and $86.9m respectively, thanks to organic growth and new contributions from Atrium. Excluding Atrium, topline would have grown 10% yoy. The group plans to distribute 97.5% of income amounting to $60.8m, translating to DPU of 3.64cts.

Point: During the quarter, leases were renewed at 9.3% higher than preceding levels. Occupancy remained at a high 99.7% while tenant retention rate averaged about 79.6% YTD vs 82.4% in 2007. CMT continues to provide good earnings visibility going forward. A portion of the 31% of portfolio rental income scheduled to be reviewed in 2009, have been locked in through pre-commitments at SSC and Lot One, where enhancement works are anticipated to complete by end 08. As a result, current locked-in revenue for 2009 exceeds 83% of 2008 annualised gross revenue. In view of the tight resource environment and high construction costs, the group
intends to put on hold AEI at JEC and FIT and Tampines office extensions. Refinancing issues are being addressed with sufficient funding capacity to meet financing needs till June 09 and plans to refinance the remaining $680m debt due Aug 09 is in progress.

Relevance: Notwithstanding CMT’s diversified and resilient portfolio of suburban malls, we have lowered our FY09 DPU forecast to 14.5cts to adjust for a slower pace of rental growth and assumed higher vacancy levels in view of the moderation in economic activities. With the deferment of redevelopment projects, we have lowered our DCF to $2.63. Our price target of $2.42 is pegged at parity to RNAV of $2.42. Maintain Hold.