CapitaLand Mall Trust - Quality stock to hold amid uncertainties
- 4Q16 DPU flat YoY.
- Positive shopper traffic and tenant sales.
- Rental reversions moderated.
4Q16 results within our expectations
- CapitaLand Mall Trust (CMT) reported a 6.1% YoY decline in its 4Q16 gross revenue to S$169.3m, largely due to the absence of contribution from Funan and Rivervale Mall, which were closed for redevelopment and divested, respectively.
- DPU was flat YoY at 2.88 S cents, as management released S$12.0m of taxable income available for distribution which was retained from 1H16 but retained S$17.1m of capital distribution following the sale of the office strata units of Westgate Tower on 20 Oct 2016. Results were in-line with our expectations.
- For FY16, CMT’s gross revenue rose 3.1% to S$689.7m and this formed 98.8% of our full-year forecast. DPU of 11.13 S cents represented a slight decline of 1.1% and accounted for 99.3% of our projection.
Firm occupancy, but reversions to remain under pressure
- CMT showcased its resilience by recording higher shopper traffic of 2.3% in FY16, while its tenants’ sales psf per month grew 0.9% despite the lacklustre retail environment in Singapore.
- Occupancy at its malls was also stable at 98.5%, as at 31 Dec 2016 (-0.1 ppt QoQ). However, CMT experienced a continued moderation in its rental reversion trend, as the increase in rental rates came in at 1.0% for the full-year (1H16: 1.7%; FY15: 3.7%).
- Overall occupancy cost was 19.0% for FY16, versus 18.5% in FY15. However, on a comparable mall basis, the occupancy cost for FY15 would instead have been 19.2%.
- We expect continued pressure on rental reversions in the foreseeable future, but expect management to continue its proactive approach in managing its lease expiries, tenant mix and operational efficiencies.
- We incorporate this latest set of full-year results in our model, and make some minor adjustments to our DPU forecasts (FY17 and FY18 projections lowered by 0.5% and 0.2%, respectively).
- We also factor in a slightly higher cost of equity assumption of 7.3% (previously 7.2%), as we raise our risk-free rate from 2.4% to 2.7%.
- Rolling forward our valuations, our fair value estimate is lowered from S$2.23 to S$2.20.
- However, we maintain our BUY rating given potential total returns of ~16%.