CapitaLand Mall Trust (CMT) - UOB Kay Hian 2017-04-21: 1Q17 Results In Line

REITs − Singapore - UOB Kay Hian 2017-04-21: 1Q17: Results Of CMT (In Line) And Cache (In Line) CAPITALAND MALL TRUST C38U.SI CACHE LOGISTICS TRUST K2LU.SI

REITs − Singapore - 1Q17: Results Of CMT (In Line) 

  • CapitaLand Mall Trust (CMT)’s results came in in line with expectations. It saw negative rental reversion of 2.3% in the quarter. 
  • Maintain HOLD on CMT with a target price of S$1.95. 
  • Maintain OVERWEIGHT on the REITs sector.



WHAT’S NEW


  • CapitaLand Mall Trust (CMT) has reported their quarterly results.


ACTION 

  • Results in line with expectations; maintain HOLD with an unchanged target price of S$1.95. Entry price: S$1.75. 
  • Our valuation is based on DDM (required return: 6.3% and terminal growth of 1.2%). 
  • 1Q17 DPU of 2.73 S cents (0% yoy, -5.2% qoq) came in line with our expectation, representing 25.7% of our full-year forecast. 
  • 1Q17 gross revenue and net property income saw respective declines of 4.3 % yoy and 6.1% yoy, on the back of Funan's closure last July. Despite this, 1Q17 DPU remained flat as the REIT manager retained less distributable income (S$5m) in the quarter. 
  • In 1Q16, S$12m was retained to be paid out in 4Q16.

Negative rental reversion of 2.3% for 1Q17. 

  • Management had previously guided for the prospects of negative reversions for certain quarters. Negative reversions were recorded at Bedok Mall (-7.1%), Bugis+ (-2.9%), Raffles City (1.8%) and Westgate (- 10.0%). Tenant sales and shopper traffic both declined 0.7% yoy and 0.5% yoy respectively.

Funan AEI still on track, with piling works well under way. 

  • Management re-iterated that the S$560m AEI remains on the track for completion in 4Q19. We would not rule out the likelihood of CMT leveraging on the expertise of sister REITs CCT, ART and sponsor CapitaLand in potential tie-ups.


Challenging retail environment. 

  • Management has re-iterated its cautious outlook on the sector, noting that the retail sales index (excluding motor vehicle sales) declined 4.9% yoy in Feb 17. 
  • It also previously highlighted high labour costs, the ubiquity of online retail platforms and lower tourist expenditure to be contributing factors to its tepid operating environment. 
  • According to industry consultant CBRE, 1Q17 suburban prime rents declined 1.3% yoy (-0.3% qoq), the sixth consecutive quarter of decline. 1Q17 suburban rents have contracted 3.5% from 3Q15’s peak. However, with an additional 1.15m sf in retail space this year, 2017 supply of 1.22m sf will be below the average historical 5-year supply of 1.67m sf, according to CBRE.






Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2017-04-21
UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 1.950 Same 1.950
BUY Maintain BUY 0.950 Same 0.950



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