CapitaLand Mall Trust - Maybank Kim Eng 2016-01-25: Bedok to the rescue!

CapitaLand Mall Trust - Maybank Kim Eng 2016-01-25: Bedok to the rescue! CAPITALAND MALL TRUST C38U.SI 

CapitaLand Mall Trust (CT SP) - Bedok to the rescue! 

FY15 was hard, but FY16 harder still, maintain SELL 

  • FY15 results would have been flat if not for the recent acquisition of Bedok Mall and AEIs undertaken in FY14. 
  • FY16-18 could be even more challenging as supply is 2x annual demand, amid the weak economic conditions expected this year. 
  • We forecast flat DPUs till FY18 (marginally revised +1.4%/-0.4%/+0.6%). 
  • Maintain SELL with TP SGD1.66 on a target yield of 6.75%. 
  • Positive catalyst could be the redevelopment of Funan, but any contribution from that would only be in FY19 at the earliest. 

Full year operating revenue up on Bedok… 

  • Full year operating revenue (inclusive of JVs) grew 1.7%, while DPU grew 3.8%, 102%/103.4% of our forecasts, boosted by 4Q15 revenue growing 9.2% YoY (11.6% QoQ) to SGD180.4m due to a full quarter contribution from Bedok Mall. 
  • Flow-through effects to DPU were however dampened by equity issuance for the Bedok acquisition, and 4Q DPU grew just 0.7%. 

… but actually was flat on a same mall basis 

  • Excluding Bedok, on a same mall basis, revenue actually was flat, -0.1% YoY, underscoring the limits of organic growth in a tough operating environment of a weak economy and growing supply competition. 
  • Mall operating numbers reflect this reality: recession-like rent reversions of 3.7% (6.1%: FY14), and occupancy declining to 97.6% (98.8%: FY14), despite shopper traffic and tenant sales growing 4.9% and 5.3% respectively. 
  • Management shared that growing operating costs for tenants contribute to keeping a lid on reversions despite improved sales, a trend they think will stay for the foreseeable future. 

Solid management, but FY16-18 could be tough 

  • Ex-acquisition, FY15 DPU could have seen negative growth if not for FY14’s asset enhancements at Bugis, JCube, Sembawang, and Bukit Panjang, a testament to management’s foresight. 
  • On-going enhancements are at IMM, Clarke Quay, Tampines, and Plaza Sing to meet future challenges, as the next three years are likely to prove even tougher with 4.4m sf of new retail space hitting the market, about 2x annual historical demand. 

Joshua Tan Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-01-25
Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 1.66 Same 1.66