CapitaLand Mall Trust (CT SP) - UOB Kay Hian 2017-07-24: 2Q17 Retail Climate Remains Challenging

CapitaLand Mall Trust (CT SP) - UOB Kay Hian 2017-07-24: 2Q17 Retail Climate Remains Challenging CAPITALAND MALL TRUST C38U.SI

CapitaLand Mall Trust (CT SP) - 2Q17 Retail Climate Remains Challenging

  • Negative rental reversions continued in 1H17, primarily due to Westgate and Bedok Mall, although management remains optimistic on the long-term fundamentals of both malls. 
  • While shopper traffic and occupancy remain healthy, retail rents are expected to stay under pressure due to the sizeable upcoming supply amid weak demand. 
  • Funan redevelopment is well received with pre-commitments hitting 30% ahead of completion in 2019. 
  • Maintain HOLD. Target price: S$2.04.



RESULTS


Results in line with expectations. 

  • CapitaLand Mall Trust (CMT) distributed 2.75 S cents for 2Q17, up 0.4% yoy and 0.7% qoq. 
  • 2Q17 gross revenue fell 1.3% yoy (-2.0% qoq) while NPI grew 1.2% yoy (-2.1% qoq) due to utility cost savings. The revenue decline was attributed to Funan, which closed in Jul 16 for development. 
  • The results were in line with expectations with 1H17 DPU representing 51.7% of our full-year estimate.


STOCK IMPACT


Negative rental reversion of 1.6% in 2Q17. 

  • The portfolio negative rental reversion was attributed largely to Westgate (-10%) and Bedok Mall (-7.4%) although negative contributions also came from Raffles City (-1.2%) and JCube (about -2%). Excluding contributions from Westgate and Bedok Mall, portfolio rental reversion would be +1%.
  • Management remains optimistic on the long-term fundamentals for both Westgate and Bedok Mall. 
  • Shopper traffic remained stable at about 175m (+0.4% yoy) in 1H17. However, shopper traffic declined 0.5% qoq. Tenants’ sales per month remained unchanged yoy at around S$85 psf pm.

Occupancy remained healthy. 

  • Portfolio-wide occupancy remained stable at 98.6% (4Q16: 98.5%). IMM Building and The Atrium at Orchard saw 50bp and 70bp pick-up in occupancies respectively.

Funan pre-commitments show promise. 

  • About 30% of Funan’s retail net lettable area of 324,000sf has been pre-committed ahead of the 2019 opening of the mixed development. This makes Funan one of CMT’s most well-received developments to-date. Pre-committed retail stores include Fairprice Finest, Newstead Technology, Golden Village, Kopitiam and Climb Central. 
  • The development is on schedule, with pilling works about 50% completed. Management targets a ROI of 6.5% for the property.

Rents remain under pressure. 

  • Average prime retail rent island-wide dropped 2.2% qoq to S$24.75 psf pm with weakness seen in the City Hall-Marina Centre and fringe areas, according to CBRE. The supply of another 925,582sf of retail space in 2H17 and a further 1.64m sf in 2018 will pressure retail rents for 2017-18. 
  • Valuers have moderated rental growth assumptions by 50bp across CMT’s portfolio to reflect this.

Asset enhancement initiatives for Bukit Panjang Plaza were completed this quarter.

  • Management note that despite the Hillion Mall opening in very close proximity to Bukit Panjang Plaza, the design aspects and facilities should keep retention high. 
  • Management note however that due to many tenants having stores in both Hillion Mall and Bukit Panjang Plaza, they may eventually consolidate.


EARNINGS REVISION/RISK

  • We retain our earnings estimates.


VALUATION/RECOMMENDATION

  • Maintain HOLD and target price of S$2.04, based on DDM (required return: 6.3% and terminal growth of 1.5%).


SHARE PRICE CATALYST

  • Positive newsflow on retail rentals, consumer spending, wage increments and mall occupancy.




Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2017-07-24
UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 2.040 Same 2.040



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