CAPITALAND MALL TRUST
C38U.SI
CapitaLand Mall Trust (CT SP) - Flat DPUs, but yield target revised
Revise yield targets due to negative rates
- Fundamentally, our views have not changed. DPUs tweaked lower 0.6% as we believe supply pressures will weigh on occupancy and rent reversions.
- Tenants also face high occupancy costs. Having said that, yield targets have to be revised lower in the face of a negative interest rate environment and collapsing long bond yields (see sector note).
- CT’s yield is currently 5.2%, close to its -1SD, but we re-peg CT’s yield target to 5.7% (from 6.75%), mid-way between the -1SD and the mean to reflect our negative view on the retail sector.
- Applied to FY16 DPU, TP is revised +18% to SGD1.97. Maintain SELL.
Occupancy and reversions under pressure
- Occupancy declined in 2015 to 97.6% from 98.8% (2014), and reversions tapered to 3.7% from 6.1% over the same period.
- As supply is set to increase formidably at 2.4% CAGR 2016-18, c.2.1x historical demand, this will keep a lid on reversions, as well as exert downward pressure on occupancy, unless the economy picks up significantly.
- We expect occupancy to edge lower to 97.1% in 2016, and reversions to taper again to c.2.8%.
- We note that last year saw negative net absorption of retail space: -0.3m sf. Nearly zero in the outside central region, -0.3m in the central region.
Occupancy costs above historical average
- While shopper traffic and tenant sales both advanced 4.9% and 4.4% YoY, this did not translate into stronger reversions as tenants are facing high operating costs, not just from the on-going labour crunch, but also occupancy costs being at 18.5%, some 183bp above the 16.7% long-term historical average.
Flat DPU outlook: Bedok offset by Funan
- Our revenue, NPI, DPU outlook for FY16 is relatively flat: +2.8%/+2.8%/+0.1%. This is driven mainly by Bedok Mall’s full year inclusion but offset somewhat by Funan’s closing mid-2016, as well as a greater unit base due to equity issuance for Bedok.
- The market eagerly awaits redevelopment plans for Funan, which if well received could be a long-term DPU catalyst.
Joshua Tan
Maybank Kim Eng
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http://www.maybank-ke.com.sg/
2016-04-12
Maybank Kim Eng
SGX Stock
Analyst Report
1.97
Up
1.66
