To-date, CMT has renewed leases for about 12.1% of the total NLA, enjoying a 1.5% increase in rental rates compared to the preceding rates. Despite having another 302 leases expiring this year, the gross revenue lock-in for FY09 so far already exceeds 98% of FY08’s gross revenue. CMT’s malls are still operating at nearly full-occupancy (99.7%).
As sentiments on the economy improve, CMT has seen shopper traffic in 2Q09 improve by 1.3% yoy, 2.2% qoq on a comparable mall basis. However, actual sales of the tenants have only improved marginally by 0.2% qoq, as consumer spending remained cautious. The management maintains that it will work closely with tenants to improve sales, but also noted that tenants today are more confident of their business outlooks than six months ago.
Following the rights-issue to raise about $1.2b, CMT has pared down about $630m of debt, and intends to repay another $335m in Aug 09. Despite a $250m-decline in the capital values of its investment properties (or 3.5% decline) as a result of higher cap rates used by the valuers, CMT’s gearing remains a low 30.3% when all intended debt repayments are made, well within CMT’s target gearing range of between 30 – 35%. It is also well-positioned to weather further downside on capital values.
CMT’s DPU growth via asset enhancements will take a while to flow through as enhancement works at JEC and the Atrium will begin only in end-09 and end-2010 respectively. We retain our DDM-derived price target of $1.53. Due to the recent improvement in share price, the current yield of 5.5% appears unattractive. We are downgrading CMT to a HOLD.
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