CapitaLand Mall Trust - Maybank Kim Eng 2016-04-18: Slight erosion on a same-mall basis

CapitaLand Mall Trust - Maybank Kim Eng 2016-04-18: Slight erosion on a same-mall basis CAPITALAND MALL TRUST C38U.SI 

CapitaLand Mall Trust (CT SP) - Slight erosion on a same-mall basis 

1Q16 results met our expectations 

  • 1Q16 results met our expectations. In terms of like-for-like malls, there was a slight erosion in revenue and NPI on a YoY basis. 
  • Our view is unchanged: that CT will see flattish FY16-17 DPUs as demand for retail space remains poor, labour markets are entering a challenging period, and supply pressures will not help. 
  • As with our 12 Apr sector note: negative interest rates, global bond yield compression, have kept REIT yields tight. 
  • CT is trading at 5.2%, premium to its -1SD (5.4%). Our yield peg for CT is 5.7%, the mid-point between the -1SD and the mean, to reflect our low-growth view of the retail sector. 
  • Applied to FY16-17 DPU, we maintain SELL, TP (S$1.97) unchanged. 

Slight erosion if measured like-for-like 

  • Due to the inclusion of Bedok Mall in 4Q15, revenue, NPI, and DPU grew 7.4%/8.6%/1.9% YoY, forming 26%/26.7%/24.2% of our FY16 estimates. 
  • Excluding Bedok, revenue based on like-for-like malls would have dropped 0.6% YoY, while NPI would have dropped 0.2% YoY, underscoring the tough environment that malls are operating in now. 
  • Rent reversions tapered from 3.7% in FY15 to 1.4% in 1Q16. 
  • Key revenue driver, occupancy, was thankfully maintained at 97.7% (4Q15: 97.6%). 

Reversions to be weak 

  • We’re still sceptical of strong reversions or occupancy gains going forward, coming off negative demand for retail space last year (-0.3m sf) and labour market weakening. 
  • Supply pressures remain high, with total retail space set to grow at a 2.4% CAGR during 2016-18, which is about 2.1x annual demand. 

Funan re-development a potential catalyst? 

  • CT’s management has called on the public for ideas on the redevelopment of Funan, which will be closed for 3 years starting 3Q16. 
  • To develop a “mall of the future”, we like the public consult as that could reduce development risk, especially as the project is on the scale of ION Orchard – 870k sf (388k sf GFA on top of the current 482k sf).

Joshua Tan Maybank Kim Eng | 2016-04-18
Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 1.97 Same 1.97