Capitaland Mall Trust - DBS Vickers 2015-10-13: Value emerges post-correction

Capitamall Trust - DBS Vickers 2015-10-13: Value emerges post-correction CAPITALAND MALL TRUST C38U.SI 

Capitamall Trust - Value emerges post-correction 

  • Valuations are attractive after share price correction 
  • Funan AEI the next anticipated big project 
  • Upgrade to BUY, TP S$2.12 

Negatives already priced in. 

  • CMT’s share price has corrected c.4.5% in the past month, which we believe is largely driven by macroeconomic fears about hikes in the Fed Funds rate, as well as concerns about its resilience in the face of rising challenges faced by retailers going forward. 
  • We however, believe that CMT’s portfolio will stay resilient in the next 12 months as there are minimal lease expiries remaining for FY14 (6.4% of gross rental) and that its results will continue to grow steadily, given the attractive location of its malls. As such, its tenant retention should remain high. 
  • In our previous report, titled “Retail REITs: diving deep into the nuances of the sector”, we lowered our annual rental growth assumptions for FY15/16 by 50-100bps across the portfolio, and imputed 0% rent growth for weaker performing assets such as Funan and JCube. 

AEI works at Funan: sooner rather than later? 

  • We note that c.40% of leases at Funan (5% of topline) will expire by 2015 – given that the REIT’s 10% development limit should be freed up by next year as Westgate Tower is completed by year-end, we could see CMT embarking on major redevelopment works at Funan to incorporate the additional 380k sqft of commercial GFA that the REIT has already purchased, and rejuvenate the mall’s positioning and prospects. Should this materialise, we could see the mall’s NLA almost doubling to 550-600k sqft from 300k sqft currently, and this would be an earnings driver in the medium term. 

Upgrade to BUY, TP S$2.12. 

  • At current prices, we believe value has emerged as yields of c.5.9-6.0% for FY15-16, which is near its - 1SD trading range and believe that concerns should already be priced in at current levels. 
  • We upgrade the stock to BUY, with a slightly lower TP of S$2.12 as we adjust our rental growth assumptions for Westgate to bring it in line with the rest of the portfolio.

Derek Tan DBS Vickers | Rachael TAN DBS Vickers | http://www.dbsvickers.com/ 2015-10-13
DBS Vickers SGX Stock Analyst Report BUY Upgrade HOLD 2.12 Down 2.14