Target price Increased from 2.00 -SGD 2.24
Closing price September 27, 2013 SGD 1.98
Yield least distorted by short-term boosts
Action: U/G to Buy; yield least distorted by short-term boosts
CMT has underperformed the other REITs year to date (-7% vs. FSTREI’s -5.6%). Our estimates suggest any potential rise in CT’s cost of debt in the long run is likely to be the most limited among the REITs we cover (3.8% vs the current 3.4%), and as the market starts to appreciate this, we think CMT’s year to date underperformance could reverse. Upgrade to Buy.
Catalyst: Downtime to be used for asset enhancement
Higher vacancy/tenant turnover remains a key risk for retail landlords, in our view. CMT’s management will likely continue to make use of such downtime for asset enhancement.
Valuation: TP raised to SGD2.24 (from SGD2.00)
We raise our TP to SGD2.24 (from SGD2.00) to reflect a marginally higher NAV estimate of SGD1.94 (from SGD1.92, on higher valuation for its 40% stake in Raffles City hotel) and lower ascribed FY14F yield spread of 2.1pp (from 3pp). Our estimates suggest CMT still offers a reasonable return over the long-term risk-free rate if we were to remove all short-term distribution boosts (“true” yield spread of 2.2pp vs trough spread of 1.9pp).
Coupled with an above-average projected DPU growth (3-year CAGR = 4.6%), we believe CMT’s overall quality deserves a premium valuation. As a cross-check, our current TP translates into a P/B multiple of 1.3x based on end-June book value of SGD1.68, which is in line with the average multiple that CMT has traded since 2003.
Our TP implies a potential total return of 18.3% (potential upside of 13.1% + FY14F yield of 5.2%). Upgrade to Buy from Neutral
Publish date: 02/10/13