1H16 realised distributable income (RDI) of RM85.2m met both our and market expectations at 49%. 1H16 GDPU of 4.20 sen was also within expectation (49%) while earnings remain unchanged. Reiterate MARKET PERFORM call with unchanged TP of RM1.65, based on unchanged target gross/net yield of 5.4%/4.9% on FY17E GDPS/NDPS of 8.5 sen/7.7 sen on a +1.8ppt to our 10-year MGS target of 3.6%.

1H16 realised distributable income (RDI) of RM85.2m came in within both our and consensus expectation at 49%. First interim DPU of 4.20 sen was declared, which included a 0.13 sen non-taxable portion. This also met our FY16E target (49%) of 8.5 sen, implying 5.3% yield.

YoY improvement mainly from TCM & TCOT and higher rental reversions. YoY-Ytd 1H16 GRI improved significantly (+15.6%) mainly on the back of: (i) inclusion of new assets, Tropicana City Mall and Office (TCM & TCOT) on 10th July 15, and (ii) higher rental reversions from all assets, mainly Gurney Plaza and East Coast Mall (ECM), whereas Sungei Wang Plaza (SWP) was still affected by on-going MRT1 works and closure of BB Plaza. However, 1H16 RDI increased by 8.1% weighed down slightly by higher financing cost (+34.1%) for the drawdown of term loan to part finance the acquisition of TCM & TCOT, and (ii) additional revolving credit facilities being drawn down for CAPEX. Additionally, DPU declined by 5.2% due to placement for TCM & TCOT in 3Q15. Meanwhile, QoQ RDI was rather flattish, reducing marginally (-1.5%) on the back of lower GRI, which we believe was mainly from SWP (GRI -5.0%) upon lower reversions due to abovementioned reason.

Outlook. CMMT has spent RM16.4m YTD on capex. In FY16, management allocated c.RM50m for capex and Gurney Plaza and TCM’s Asset Enhancement Initiatives (AEIs) (refer overleaf). FY16E will see 22.4% of portfolio NLA up for expiry, mostly in Gurney Plaza (9.7% of portfolio NLA), we believe SWP may not see positive rental reversions in near term of which we have already accounted for but we expect rental reversions to improve closer to completion of construction works for MRT1 by 2H17.

Maintain MARKET PERFORM call with unchanged TP of RM1.65. We maintain our FY16-17E earnings and reiterate our call and TP of RM1.65, which is based on an unchanged target gross/net yield of 5.4%/4.9% on FY17E GDPS/NDPS of 8.5 sen/7.7 sen on a +1.8ppt to our 10-year MGS target of 3.60%. At current levels, FY17E gross yield of 5.6% (net: 5.0%) is close to sizeable MREIT peers’ average of 5.5%. We have priced in most of the downside risk for CMMT, while we expect sentiment for the stock to improve going forward, closer to completion of MRT1 in 2H17. As such, pending confirmation of recovery in reversions, we are comfortable with our MARKET PERFORM call.

Risks to our call include: (I) bond yield expansions, (ii) lower-thanexpected rental reversions, and (iii) lower-than-expected occupancy rates.

Source: Kenanga Research - 20 Jul 2016