A more moderate rents outlook
CMT registered a 12.2% yoy NPI growth in 2Q13, driven by AEIs and a 6.4% portfolio rental reversion. While AEIs and mall completions will continue to drive its NPIs going forward, the marginal increase in asset values on a 15-25bps decline in cap rates seen in 2Q13 points to a more moderate rental outlook, in our view. 2Q13 DPU was in line at 24% of our and consensus full-year estimates. 1H13 DPU formed 48% of our full year. We keep our estimates and maintain our DDM-based target price (7.2% discount rate). Maintain Neutral on valuations with the stock at a compressed FY14 yield of 5.3% and P/BV of 1.2x. Positive surprises from AEIs and accretive acquisitions form the rerating catalysts.
AEIs and rental reversion
Completion of AEIs from Bugis+ and The Atrium remain the drivers for CMT’s results, contributing to S$13.4m of the S$17.3m yoy (+10.4%) increase in gross revenue in 2Q13. DPU rose 10.2% yoy in 2Q13. CMT also continued to register healthy operating metrics which included 1) a 6.4% portfolio rental reversion yoy in 2Q13, with IMM (+7.6%), Raffles City (+5.8%) and Clarke Quay (+6.4%) among the key contributors; 2) a portfolio occupancy of 99.1%; and 3) improved tenant sales (+4.8% yoy) and shopper traffic (+3.3% yoy), compared to 1Q13.
Cap rates down, but…
1H13 saw portfolio cap rates fall by 15-25bps from 4Q12, underpinning a S$104m increase in overall asset values. However, same-mall valuations are only up by 1-2% yoy, which suggests to us that rental growth prospects are moderating. The fall in cap rates was driven by recent transactions in the physical market.
Catalysts and NPI drivers
Westgate (retail portion) is on track for completion by end-2013 (70% leased), with AEIs on Bugis Junction expected to complete in 3Q14. A phase two to house more outlet stores in IMM (currently 54 stores) is also being explored. Repositioning Funan Centre remains a potential. CMT continues to be open to acquiring its pipeline assets at the right time, namely, Star Vista, Bedok Mall and the remaining stake of Westgate.
Publish date: 21/07/13