Maybank Kim Eng Research 2015-07-01 Real Estate Sector (Part 3): Retail REITs - BUY Starhill Global REIT (TP $0.97), HOLD Mapletree Commercial Trust (TP $1.43), Frasers Centrepoint Trust (TP $2.03), SELL CapitaLand Mall Trust (TP $1.87)

Investment Thesis - Retail REITs

CapitaLand Mall Trust - SELL (TP $1.87) 

  • 1Q15 revenue +1% YoY on same-mall basis, +1.6% YoY overall, mainly from Bugis Junction AEI. 
  • Operating numbers commendable despite poor retail sales islandwide. Shopper traffic and tenant sales +4.7% and +2.5% respectively. Rental reversions a respectable +6.1% YoY. 
  • We continue to be wary of poor demand and competition 
    1. Raffles City had -0.7% rental reversions, while Funan was +4.8%, due to competition from Capitol,
    2. Marina Sq AEI, South Beach and Suntec AEI. CBRE indicates City Hall area rents fell 1% QoQ. 
    3. JCube and IMM had rental reversions of -11% and +4.3% respectively, due to competition from Jems, Big Box and own sister mall Westgate. 
    4. 1Q16 could see Bukit Panjang under pressure from Hillion Mall. 
  • Flat DPUs expected: 10.7 cts (FY15) vs 10.8 cts (FY14). 
  • Aggregate leverage 33.8% (no change), all-in interest cost 3.4% (from 3.5%). 
  • Valuation: DDM, CoE 7.7%, LTG 2%. 
  • Risks to TP: malls under competition faring better than expected. 
  • Catalysts: potential redevelopment of Funan, acquisition of pipeline assets from sponsor CapitaLand. 

Mapletree Commercial Trust - HOLD (TP $1.43) 

  • Poor visitor arrivals affected Vivocity. 4Q3/15 shopper traffic -7.7% YoY, tenant sales -0.2% YoY. Rental reversions still a remarkable 17.5%. 
  • Expect increased vacancies at Mapletree Anson this FY. 
  • Flat DPUs expected: 8 cts (FY3/16) vs 8 cts (FY3/15). 
  • Aggregate leverage 36.4% (from 38.7%), all-in interest cost 2.28% (from 2.17%). 
  • Valuation: DDM, CoE 7.7%, LTG 2%. 
  • Risks to TP: strong rebound in economy and tourist arrivals. 
  • Catalyst: acquisition of pipeline assets from parent Mapletree. 

Frasers Centrepoint Trust - HOLD (TP $2.03) 

  • Shopper traffic ex-Changi City Point was +2% YoY, including CCP was +11.5%. 
  • Rental reversions slowed QoQ from 7.7% to 3.8% (excluding Bedok Point, 5.2%). 
  • Defensive due to 100% OCR exposure 
  • CCP to lead revenue and DPU growth again this FY9/15. 
  • Aggregate leverage 28.6% (from 29.3%), All-in interest cost 2.8% (from 2.5%). 
  • 11.6 cts FY9/15 DPU vs 11.2 cts FY9/14. 
  • Valuation: DDM, CoE 7.7%, LTG 2%. 
  • Catalysts far away: earliest acquisition of Waterwaypoint in 1Q17, we reckon. Northpoint 2020. 

Starhill Global REIT BUY (TP $0.97) 

  • 1Q15 most affected by drop in tourism. Shopper traffic and tenant sales were -2% and -9% YoY for Wisma Atria. Yet, +13.3% rental reversions, as international retailers continue to choose Orchard Road as foothold in the region. 
  • Chengdu NPI expectations halved to SGD3m based on poor tenant sales due to competition and crackdown on conspicuous consumption. 
  • DPU expectations raised marginally as positive effects from Myer are tempered by reduced expectations for Ngee Ann on poor tourism, Chengdu and increased interest costs. 
  • 5.6 cts FY16 DPU vs 5.2 cts FY15 (from 5.5 cts vs 5.1 cts) vs 5.1 cts FY14. 
  • Aggregate leverage 28.7% (from 28.6%), all-in interest cost 3.13% (from 3.16%) 
  • Valuation: DDM, CoE 7.7%, LTG 2%. 
  • Risks to TP: 
    1. poor visitor arrivals; 
    2. weakening of MYR, AUD, JPY. 
  • Catalysts: 
    1. renting out Myer Centre Adelaide’s 114k sf of vacant space; and 
    2. unlocking Wisma Atria’s unutilised GFA of 100k sf. 

(Derrick Heng, CFA; Joshua Tan)

Source: http://www.maybank-ke.com.sg