CapitaLand Mall Trust - Retail Outlook Remains Challenging, Maintain NEUTRAL
- We maintain our Neutral recommendation with unchanged TP of SGD2.07 which is based on our DDM methodology (CoE: 7.1%, Tg: 1.8%). CMT currently offers FY17F yield of 5.5%.
- CapitaLand Malls Trust (CMT) posted an unchanged YoY DPU of 2.73 cents, in line with our forecasts accounting for 25% of our full year results.
- Revenue and net property income (NPI) declined 4.3% YoY and 6.1% YoY mainly due to the closure of Funan mall for redevelopment. On a comparable basis, revenue was up 0.1% YoY while NPI dipped 0.2% YoY.
- Mall Shopper traffic declined 0.5% YoY while tenant sales decreased 0.7% due to slow down in retail sales. Portfolio Occupancy rate dipped to 97.7% (4Q16: 98.5%) arising due to lower occupancies in Plaza Singapura (-3.8ppt) and Westgate (- 2.8ppt).
- Gearing ratio increased marginally to 35.3% (4Q16: 34.8%) with unchanged average cost of debt of 3.2%. NAV/unit (adjusted for distribution) stands at SGD1.86.
- Owing to challenging retail environment, CMT's mall portfolio saw a negative rent reversion (-2.3%) during 1Q17, compared to +1% in 2016 . Negative rent reversion mainly arose from Westgate (-10%), Bedok Mall (-7.1%), Bugis+ (-2.9%) and Raffles City Singapore (-1.8%) partially offset by positive reversions in remaining malls.
- CMT has about 14.5% of leases (as % of rental income) due for renewal this year for which we expect flat to slightly negative rent reversions.
- Funan mall redevelopment is progressing according to schedule with targeted completion in 4Q19. The mall will be redeveloped into an integrated development comprising of 2 office towers, service residences and a retail space at a total development cost of SGD560m. CMT will be unveiling a retail experiential show suite to be open to public at the end of this month.
- Overall, We expect CMT's portfolio to remain under pressure from a challenging retail climate in Singapore. At current share price levels the stock trades at 1.1x P/BV - which we deem as fair.