CapitaLand Mall Trust - DBS Research 2017-04-21: Carefully Managing Stable DPUs

CapitaLand Mall Trust - DBS Vickers 2017-04-21: Carefully managing stable DPUs CAPITALAND MALL TRUST C38U.SI

CapitaLand Mall Trust - Carefully managing stable DPUs

  • 1Q17 DPU flat at 2.73 Scts, adjusted DPU down 6.6% y-o-y due to Funan closure, in line.
  • Rental reversion of -2.3% mainly dragged by Westgate and Bedok Mall.
  • Dip in occupancy at Plaza Singapura could be blessing in disguise.



Focus for FY17 is to maintain stable DPU. 

  • CapitaLand Mall Trust (CMT)’s slight negative DPU growth of 1.1% for full-year FY16 and flat DPU in 1Q17 were not a surprise. 
  • Growth engines such as tenant sales and shopper traffic continue to place downward pressure on the back of a still challenging retail environment, which resulted in slower growth in rental reversions. 
  • Without yield-accretive acquisitions, the focus for FY17 is to maintain stable DPUs. Hence, we expect flattish to marginal DPU growth for the next couple of years.


Negative rental reversion should not be taken at face value.

  • CMT had an unprecedented quarter in 1Q17 of a negative rental reversion at -2.3%. While we believe this is in line with the retail headwinds as well as reflecting the current fluctuations at two particular assets, Westgate (30% interest) and Bedok Mall, the red number should not be taken at face value.
  • Although either asset only contributes a single-digit percentage of the portfolio’s earnings, their negative reversion rates were disproportionately weighted when both of assets had bulk renewal spaces whereas the renewal space for the rest of the portfolio was relatively small. 
  • We expect, however, that this pattern will continue for the rest of FY17, and low to negative reversion numbers will be eased as they flown up to top lines.


Funan’s redevelopment plans are within our expectations. 

  • Plans for Funan 2.0 including a cycle-through mall, two Grade A office towers, and co-living apartment units, were largely in line with our scenario study published on 1 July 2016 (Rhapsody of Funan 2.0). The showsuite will be opened to the public on 30 April 2017.


Valuation

  • We maintain our DCF-backed TP at S$2.17. 
  • FY17F DPU yield around 5.5% and total potential return in excess of 13%.


Key Risks to Our View

  • More aggressive rate hikes than consensus’ expectations may send ripples in the market. CMT being a proxy for interest-rate investment, may then suffer from selling pressure.




Singapore Research Team DBS Vickers | Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2017-04-21
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.170 Same 2.170



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