CapitaLand Mall Trust - CIMB Research 2016-10-21: Plodding along

CapitaLand Mall Trust - CIMB Research 2016-10-21: Plodding along CAPITALAND MALL TRUST C38U.SI

CapitaLand Mall Trust - Plodding along

  • 3Q/9MFY16 DPU of 2.78/8.25 Scts within expectations, making up 25%/75% of our FY16F forecast.
  • Anemic rental uplift although tenant sales and shopper traffic increased.
  • Muted near-term earnings growth with no major AEIs completing.
  • Gearing of 35.4% provides sufficient debt headroom to fund Funan Mall redevelopment.
  • Maintain Hold with unchanged TP of S$2.20.

Topline boosted by Bedok Mall 

  • CT reported 5% yoy higher 3QFY16 revenue of S$169.7m (US$123m) with the inclusion of contributions from Bedok Mall and better performance from IMM Building, Tampines Mall and Clarke Quay. This offset the income vacuum from Funan Mall after its closure for redevelopment in Jul 16. 
  • DPU was lower yoy at 2.78 Scts due to a lower payout ratio in 3QFY16 of 93.8% vs. 101% last year when S$8m of the retained income was released.

Weak rental uplift despite higher shopper traffic and tenant sales 

  • Operations-wise, CT’s shopper traffic rose 2.9% yoy in 9M16 while tenant sales grew 1.2%. 
  • Rental reversions were anemic at 1.3% higher than preceding levels for the 703k sq ft of space renewed, and occupancy stayed at a robust 98.6%. 
  • Most of its malls enjoyed rental uplifts with the exception of The Atrium @ Orchard, Bugis+, Westgate and JCube, which saw negative reversions of 6-12% compared to the previous period.

Muted earnings growth near term 

  • We expect earnings growth for 4QFY16 and FY17 to be relatively muted, to reflect the closure of Funan Mall for redevelopment over the next three years. 
  • The planned S$54m rejuvenation/enhancement exercise at Raffles City Shopping Centre over 3Q16-1Q18, including the upgradation of lift lobbies as well as the revamp of Central Atrium at Level 3, is unlikely to move the earnings needle significantly when completed, although it would improve shopper experience at the property, in our view.

Sufficient debt headroom to fund Funan redevelopment 

  • CT’s gearing stood at 35.4% as at end-3QFY16 with average cost of debt of 3.2%. 
  • We expect the gearing to rise with the gradual deployment of funds for Funan Mall’s redevelopment exercise, totaling S$560m. Based on a target gearing of 40%, CT would have an estimated debt headroom of c.S$800m for this capex requirement.

Maintain Hold 

  • We leave our FY16-18F DPU estimates and DDM-based TP of S$2.20 unchanged. 
  • CT is currently trading at 5% FY16F DPU yield, close to the +1s.d. level. 
  • We believe earnings catalysts may be limited during the Funan redevelopment period and this will cap further outperformance in the share price. 
  • Upside risk could emerge if CT acquires assets to grow inorganically.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-10-21
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 2.200 Same 2.200