CapitaLand Mall Trust - CIMB Research 2016-07-22: Medium term uplift from Funan

CAPITALAND MALL TRUST C38U.SI

CapitaLand Mall Trust - Medium term uplift from Funan

CT’s results largely boosted by Bedok Mall acquisition, 2Q DPU of 2.74 Scts in line.
Rental reversion growth modest at 1.7%, but malls continue to be well visited with higher tenant sales and shopper footfall.
Funan Mall to be redeveloped into a mixed retail/office/serviced residence property with a projected ROI of 6.5%.
S$560m of development capex can be funded through debt.

CT’s higher 2Q/1H DPU estimates of 2.74/5.47 Scts was in line with expectations, making up 25%/50% of our FY16 forecast. This was achieved on the back of a 7% rise in 2Q revenue to S$171m on contributions from Bedok Mall, which was acquired in Oct 15, and higher income from IMM Building, Tampines Mall and Bukit Panjang Plaza.
The trust also revalued its portfolio with a $55m surplus, largely coming from the potential redevelopment upside from Funan Mall.

CT reported a 1.7% rental reversion growth for the 533ksf of NLA it re-contracted in 1H16, with shopper traffic and tenant sales rising 3.6% and 2.3% yoy, respectively.
Most of its malls achieved rental uplifts of between 2-5% over preceding year levels, however, properties such as Atrium, Bugis+, Westgate and JCube saw negative reversions due to fine tuning of tenant mix.
Portfolio occupancy was sustained at a high 97.9%.

We expect 2H16 earnings to remain relatively flat to reflect the impact of the Funan Mall closure in Jun 16. The property will be doubled in size to 611ksf of NLA into an integrated lifestyle mall/office/serviced residence property when completed in 4Q19.
Management guides that it is targeting a return on investment of 6.5% for this exercise or an incremental S$36.6m of NPI.
Our current forecast assumes CT continuing to own the entire property including the non-retail components post redevelopment.

Funan Mall’s redevelopment exercise would cost S$560m, including construction and other related costs. CT’s gearing was at 35.3% at 2Q16.
Based on a target of 40%, CT would have an estimated debt headroom of c.S$800m, more than sufficient to fund this exercise through progressive debt drawdown.

Our DDM-TP is raised to S$2.20 as we adjust our FY16-18 DPU estimates to factor in
1. income loss from Funan Mall during redevelopment,
2. subsequent accretion in earnings from the enlarged property, and
3. lower cost of equity of 7.6% (from lower Rf).
CT’s share price has outperformed the market and is currently trading at a forward yield of c.4.9%, close to its +1s.d. level.
We believe earnings catalysts may be limited during the construction period and this will likely cap further outperformance in its share price.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-07-22

CIMB Securities SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.20 Up 2.15