Downgrade to HOLD. We downgrade CMT to HOLD on valuation grounds and lackluster DPU growth prospects as most of its eligible portfolio malls have already undergone asset enhancements (little boost to our DDMderived TP). The remaining known drivers include: (1) Bugis Junction which will complete its SGD35m AEI (with incremental SGD3.1m NPI per annum) by 3Q14; (2) Tampines Mall with its SGD36m AEI (with incremental SGD2.9m NPI per annum) by 4Q15; and (3) the active leasing of Westgate and Westgate Tower (30% stake) in 4Q13 and 4Q14 respectively. The two AEIs are relatively small with projected increment in capital value (net of capex) of SGD22.1m and SGD16.4m respectively, adding ~3 SG-cts to our RNAV. We are forecasting an unexciting 2.6% DPU CAGR in 2013-2016. We transfer coverage of CMT to Ong Kian Lin from Wilson Liew. Our top pick in this space is Suntec REIT.

All eyes on Westgate. CapitaLand announced in Aug that it will retain its corporate headquarters at Capital Tower in the CBD, reversing its earlier intention to move to Westgate Tower a year ago. CapitaLand was originally slated to occupy half of Westgate Tower. This means all 320k sqft NLA in the tower is now available for lease by end 2014. All 314k sqft office space in the Jem development next door, slated to complete later this year, has been fully leased with key tenants being MND, BCA and AVA). Westgate will face competition in its next rent review cycle in 2016-2017 when Sim Lian’s nearby mixed development project in Venture Avenue (with minimum 90% office component; ~500k sqft office space) comes onboard. We are forecasting average passing rents of SGD16.50psf/mth for Westgate retail and SGD7.50 for Westgate Tower.

Acquisitions unlikely in near term. CMT’s gearing is at a comfortable 34.8%. While management is open to acquisitions, we think any acquisition from its sponsor is unlikely to happen soon. This is because CMA’s most stabilized asset, ION Orchard, remains a major contributor to recurrent income while the other properties (The Star Vista, Bedok Mall and 50% stake in Westgate) are either not stabilized or still under construction.

Other catalysts. The redevelopment of Funan (additional GFA of 315,561 sq ft already approved for office use) remains a possibility, but we believe the preference would be to change it to retail use, either in whole or in part. There is also market talk of CapitaLand selling strata offices in Westgate Tower on a whole floor basis. The eventual materialization of Funan’s AEI plans and Westgate Tower strata office sales may be positive catalysts for the stock, but until then, we derate CMT to HOLD with TP of SGD2.10.

Source: Maybank Kim Eng Research - 27 Nov 2013