CapitaLand Mall Trust - CIMB Research 2017-01-20: Muted rental growth

CAPITALAND MALL TRUST C38U.SI

CapitaLand Mall Trust - Muted rental growth

4Q/FY16 DPU of 2.88/11.13 Scts within expectations, accounting for 26%/101% of our 4Q/FY16 forecasts.
Weak rental uplift from tenant remixing was partly offset by higher occupancies from selected properties.
We expect muted near term earnings growth with no major AEI earnings kicker.
Gearing of 34.8% provides sufficient debt headroom for Funan mall redevelopment.

CT reported a 6.1%/7.6% drop in 4Q16 revenue and NPI to S$169.3m/S$116.2m due to the closure of Funan Mall for redevelopment and sale of Rivervale Mall in Dec 15.
However, distributable income to unitholders rose slightly to S$102m (DPU: 2.88 Scts) after a retention of S$5.2m.
For FY16, DPU came in at 11.13 Scts down 1.1% yoy. Book NAV remains unchanged at S$1.89 after chalking up a small S$68.5m revaluation gain.

Although portfolio occupancy remained high at 98.5%, rental reversion was a small 1% for FY16, as CT continues to remix its tenant trades within its properties. The main drags came from Atrium @ Orchard, Bugis+, Westgate and Bedok Mall, partly offset by higher take up at IMM Bldg and Clarke Quay.
The trust renewed 889,806sf of space in FY16, accounting for 20% of portfolio NLA. Shopper traffic rose 2.3% yoy but tenant sales inched up 0.9% yoy, resulting in occupancy cost rising further to 19%.

We expect the closure of Funan Mall for redevelopment to create some earnings vacuum in FY17-19.
While this would likely be partly mitigated by higher occupancy at Clarke Quay with new-to-market tenants and asset enhancement initiative (AEI) works at Tampines Mall and Raffles City, we believe these upgrading works are unlikely to move the earnings needle significantly. Hence, we anticipate earnings growth to be fairly muted over the next 2-3 years.

CT’s gearing dipped slightly to 34.8% as at end-4Q16, post revaluation, with average cost of debt unchanged at 3.2%.
We expect gearing to rise with the gradual drawdown of funds for Funan Mall’s redevelopment works, estimated at S$560m. Based on a target gearing of 40%, CT would have estimated debt headroom of S$800m for this capex requirement.
In addition, CT has a manageable S$250m of refinancing due in FY17.

We tweak our FY17-18 DPU estimates by +0.6%/-1.8% to factor in the latest results.
Our DDM-based target price is raised slightly to S$1.98 as we roll forward our projections.
We maintain our Hold call on the lack of near term catalysts and limited upside.
Key risk to our call would be better than expected rental reversion performance.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-01-20

CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 1.98 Up 1.960