9M16 realised distributable income (RDI) of RM128.5m met both our and market expectations at 74% and 71%, respectively. No dividends, as expected. Maintain FY16- 17E earnings but upgrade rating to OUTPERFORM (from MP) as downsides have been accounted for and valuations appear compelling (12.6% total return) while the sweetener would be improvements at SWP closer to MRT1’s completion in 2H17. Maintain TP of RM1.65, on FY17E GDPS and +1.8ppt to our 10-year MGS target of 3.60%.

9M16 realised distributable income (RDI) of RM128.5m came in within both our and consensus expectation at 74% and 71%, respectively. No dividends are proposed, as expected.

YoY-Ytd growth on TCM and TCOT. YoY-Ytd 9M16 GRI improved significantly (+11.0%) mainly on the back of: (i) inclusion of new assets, Tropicana City Mall and Office (TCM & TCOT) on 10th July 2015, and (ii) higher rental reversions from most assets, primarily Gurney Plaza and East Coast Mall (ECM) and The Mines (TM). However, RDI increased only by 6.6%, weighed down by: (i) higher financing cost (+21.6%) to part finance the acquisition of TCM & TCOT, and (ii) additional revolving credit facilities being drawn down for capex. Meanwhile, DPU declined by 2.8% from the placement for TCM & TCOT in 3Q15.QoQ, GRI was flattish (+1.6%), while RDI was up by 2.4% on slight improvement in NRI margins (+0.4ppt) and slightly lower expenditure (-1.3%) from lower auditors fees and nonoperating expenditure.

Outlook. CMMT has spent RM28m 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 33.9% of portfolio NLA up for expiry, mostly in Gurney Plaza (14.4% of portfolio NLA) while FY17 will see 39% of leases up for expiry. We believe SWP may not see positive rental reversions in the 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.

Upgrade to OUTPERFORM (from MP) 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%. However, we upgrade our call to OUTPERFORM (from MP) as we are comfortable with earnings and valuations as most downsides have been priced in, while at current levels, CMMT’s FY17E gross yield of 5.8% is above sizeable MREIT peers’ average of 5.5% (12.6% total return). Going forward, the additional sweetener would be improvements at SWP, which is likely to happen closer to the completion of MRT1 by 2H17.

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

Source: Kenanga Research - 21 Oct 2016