FY19 realised distributable income (RDI) of RM128m came in within our and consensus expectations, at 95% and 103%, respectively. FY19 gross dividend of 6.25 sen is also within at 95%. We lower FY20E RDI by 7% to RM130m on more conservative reversion rates and downtime for AEI at Gurney Plaza, and introduce FY21E RDI of RM131m. Maintain OP despite lowering TP to RM1.05 (from RM1.15) with FY20E implied yield of 6.0%.

FY19 realised distributable income (RDI) of RM128m came in within our and consensus expectations at 95% and 103%, respectively. 4QFY19 GDPU of 3.03 sen was declared, which included a 0.59 sen non-taxable portion, bringing FY19 GDPU to 6.25 sen which came in close to our FY19 target (95%) of 6.60 sen, implying 6.2% yield

Results’ highlight. YoY, top-line was down by 2.2% due to weakness at Sungei Wang Plaza (SWP), The Mines (TM) and 3 Damansara on negative reversions but amidst improving occupancy for SWP and TM. Gurney Plaza (GP) and East Coast Mall (ECM) remained the main performers recording positive reversions and close-to-full occupancy. This coupled with: (i) higher operating cost (+3.7%) from higher utilities consumption and (ii) higher financing cost (+1.4%), caused RDI to decline by 21%. QoQ, top-line was up slightly by 2.5% on improved rentals for all assets save for TM (-0.9%). However, higher operating cost (+4.2%) and higher financing cost (+0.3%) weighed down on bottom-line which was only up by 0.7%.

Outlook. We expect capex of RM50-20m in FY20-21E, mainly for the refurbishment of Gurney Plaza in FY20. FY20 will see 46% of rentals up for expiry while we expect 30% of rentals expiring in FY21.

Lower FY20E RDI by 7% to RM130m and introduce FY21 RDI of RM131m. Our FY20 CNP is lowered to account for slightly lower reversions of -2% from +1% in FY20 and to account for some downtime at Gurney Plaza for AEI works, but this will be offset by improving occupancy rates to 96% (from 94%). Meanwhile, we expect FY21 will see low single-digit reversion on flattish occupancy. FY20E/FY21E GDPU/NDPU of 6.3-6.4/5.7-6.7 sen implies gross yield of 6.3/6.3% (net yield of 5.6/5.7%).

Maintain OP on a lower Target Price of RM1.05 (from RM1.15). Our TP is based on a +2.60ppt spread to the 10-year MGS target of 3.40% to FY20E GDPU/NDPU of 6.3/5.7 sen (vs. our previous GDPU/NDPU of 6.8/6.2 sen). Our applied spread is the highest among retail MREITs under our coverage (+1.3ppt to +1.7ppt) given the weakness of CMMT’s asset profile from negative reversions, and concerns of oversupply of retail space given that CMMT does not own any prime assets. However, post pricing in conservative earnings and valuations, we are confident with our OP call (with potential total return of 10%). At current levels CMMT is commanding attractive gross yield of 6.3% which is significantly higher than retail MREIT peers’ average of 5.3%.

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

Source: Kenanga Research - 23 Jan 2020