CMT’s FY08 results were within expectations, lifted by organic improvement amid a fully occupied portfolio. Continued shopper traffic growth despite a weakening spending environment underlines the more resilient suburban retail sector. The stock offers FY09 yield of 9.7%. Near term catalysts from successful rollover of its debt and recapitalising newsflow within the Sreit sector could spur share price. Upgrade to Buy with DCF-backed TP of $1.92.

Continuous organic growth.CMT reported Q4 revenue of $134.5m, +16% yoy and +3.7% qoq while distribution income came in at $60.9m, -2.1% yoy and +0.3% qoq. Topline benefited from The Atrium income and organic improvement within its portfolio. Occupancy remained at c100% and new lease/renewals were transacted at an average 9.3% over preceeding levels. However, a hike in expense ratio to 36% (vs 33% previously) after charging a $4m capital allowance and greater interest cost eroded bottomline growth. Asset values rose by 9% yoy despite a 15-25bps hike in cap rates, bringing book NAV to $2.41 and gearing 43%.

Locked in >87% of revenue.While retail sales outlook is dampened by the poorer economic outlook and discretionary spending had weakened towards end 08, shopper traffic at CMT malls continued to grow, showing the resilience of suburban malls. In addition, based on committed leases @ end 08, CMT had locked in >87% of its FY08 revenue for FY09. In terms of capital management, the group has $986m of debt due to be rolled over in 2009, of which $876m is maturing in 2H09. The group is exploring options for refinancing and intends to complete its refinancing ahead of the deadline.

Upgrade to Buy.CMT offers investor exposure to the more resilient suburban retail sector. Share price had fallen by 17% since early Jan 09 and is trading at 9.7% yield based on our still-below-consensus DPU forecast of 14.4cts. We expect newsflow on both its debt refinancing and removal of overhanging deleveraging concerns in S-reit sector via recapitalisation activities to be a driver to share price performance in the near term.