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
2.040
Same
2.040
