Why CMT acquisitions are unlikely to happen in 2013

Especially acquisitions from its sponsor CMA.

In a company update for CapitaMall Trust, Maybank Kim Eng said acquisitions, whil welcome, will be quite unlikely for the rest of 2013 "ecause 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."

Here's more from Maybank Kim Eng:

2Q13 DPU at 2.53 cts/unit. CMT delivered another quarter of DPU growth as Distributable Income (DI) grew by 10% YoY to SGD87.7m, mainly on the back of completed AEIs at JCube, Bugis+ and The Atrium@Orchard. Healthy tenant sales growth is expected to underpin positive rental reversion and Westgate is expected to open by Christmas this year, adding another income stream. Maintain BUY, TP adjusted to SGD2.15 on the back of higher cost of equity assumption of 8.3% (from 7.5%).

Underlying income in line with expectations. The 2Q13 DI of SGD87.7m excluded SGD5.7m of taxable income that had been retained for subsequent distribution in the FY. For 1H13, if the total retained taxable income of SGD12.3m is added to the DI of SGD173m, the results were in line with expectations at 50% of our full-year estimate and on track for an FY13 DPU of 10.6 cts/unit.

Malls continue to trade well. In 1H13, CMT’s malls enjoyed a 4.8% YoY growth in shopper traffic while tenants’ sales improved by 3.3% YoY. This allowed CMT to enjoy positive rental reversion of 6.4% and portfolio occupancy also improved to 99.1% from 98.3% in 1Q13.

Acquisitions unlikely in 2H13. CMT’s gearing is at a comfortable 35%. Management stated that it is still open to acquisitions either from third parties or from its sponsor CMA, but we think any acquisition from its sponsor is unlikely to happen in 2H13. 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.

No new AEIs announced. CMT is embarking on a SGD35m AEI at Bugis Junction, which is expected to be fully-completed by 3Q14. Management revealed that it is still evaluating its plans for Funan and is in discussions with the authorities over the additional GFA of 315,561 sq ft which is currently approved for office use. We believe the preference would be to change it to retail use, either in whole or in part. In our view, the eventual materialization of Funan’s AEI plans will be a positive catalyst for the stock. Maintain BUY.