●4Q results mostly in line
● AEI and Greenfield execution spot on
● Upgrade to BUY
4Q11 numbers broadly in line
CMT announced 4Q11 distributable income of S$75.5m or a DPU of 2.30 S-cents. Cumulatively, FY11 distributable income came in at S$301.6m, in line with our forecast of S$300.3m. Net property income for the year increased 4.8% YoY to S$418.2m, driven mostly by contributions from Clarke Quay and Illuma acquired in Jul10 and Apr11, respectively, and positive rental reversions.
Operating expenses tracking higher
Though we saw FY11 revenue increase 8.5% YoY (3.6% on a same-store basis), operating expenses tracked at a faster rate (up 16.7% YoY or 7.9% on a same store basis). We understand that this came mostly from onetime
expenses and also utilities and maintenance costs. Management indicated that they are actively curtailing operating expenses and we expect less aggressive margin pressure in FY12-13.
Lower valuations at IMM and Sembawang Shopping Centre
In terms of fair value adjustments - IMM’s valuation was lowered by S$53m to reflect lower rentals and margins as it transitions further into a bargain outlet mall; and Sembawang Shopping Centre’s valuation was lowered by S$19m to reflect lower rentals expectations.
Management executing well on AEIs and Westgate
JCube is currently 90% committed and we expect asset enhancement initiatives (AEI) at Atrium@Orchard and Illuma to keep on schedule (completion in 4Q12 and 2Q12 respectively). Management also proposed AEI plans for Clarke Quay, recovering space from the anchor tenant at Block C (1/4 of the NLA) to refresh the tenant mix. In addition, CMT’s first greenfield development project, Westgate, has commenced construction and is slated for completion by end 2013.
Upgrade to BUY
Management’s execution remains solid with new projects tracking closely to schedules. We also like that a substantial portion of income is derived from resilient suburban malls, given an uncertain economic outlook. Upgrade to BUY with a lower S$2.02 fair value (versus S$2.06 previously) with a 12m DPU forecast of 10.0 S-cents.
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