CapitaLand Mall Trust - Maybank Kim Eng 2015-09-08: Retail Market Weakens.

CAPITALAND MALL TRUST C38U.SI 

Retail Market Weakens 

  • Cut FY15-17 DPUs 0.8%/2.5%/3.9% on lower market rent assumptions. 
  • Outlook is weak given current demand environment and stiffening competition. 
  • TP SGD1.66, from SGD1.96 on switch from DDM to yield target of 6.75%. 
  • Maintain SELL. 


What’s New 

  • Factoring in 2015-17 market rent assumptions of -1%/-1%/+2% causes us to expect that rent reversions will surprise on the low side of 0-1.4%. As such, our FY15-17 DPUs are cut to 10.8/11.2/11.3 cts from 10.9/11.5/11.8 cts. 
  • Despite our cuts however, there is still mild growth going forward. The impending new acquisition of Bedok Mall would account for most of the growth in 2016. 2Q15 operating metrics were mixed. Shopper traffic improved to 3.4% and tenant sales to 2.8%, but portfolio occupancy fell QoQ from 98.8% to 96.4%. 
  • The fall was broad-based across malls: Funan, IMM, Bukit Panjang, Atrium, Clarke Quay, JCube, Bugis+, and Westgate. Whatever the reasons, be they AEI or tenant repositioning, these initiatives are done because competition is stiffening amid a poor retail demand environment. 
  • Rental reversion trends were also beginning to reflect a weak leasing market, c.3.1% in 2Q, down from c.6.1% in 1Q. 

What’s Our View 

  • We are changing our valuation methodology across all our REITs from DDM to yield targets to better reflect the current de-rating environment. Our target yield for CMT is 6.75% vs 7-7.5% for retail peers. 
  • CMT should trade at a premium to peers given its resilient mall portfolio, scale of operations, low leverage and stable interest cost. 
  • Applying that to our FY16 DPU lowers our TP to SGD1.66 from SGD1.96. Maintain SELL.


Joshua Tan | http://www.maybank-ke.com.sg/ Maybank KE 2015-09-08
SELL Maintain SELL 1.66 Down 1.96


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