CapitaLand Mall Trust - CIMB Research 2017-04-20: Challenging Quarter

CapitaLand Mall Trust - CIMB Research 2017-04-20: Challenging Quarter CAPITALAND MALL TRUST C38U.SI

CapitaLand Mall Trust - Challenging Quarter

  • 1Q17 DPU of 2.73 Scts was in line, accounting for 25.2% of FY17 forecast.
  • 1Q saw weak rental performance on major tenant renewals and slower shopper traffic and tenant sales.
  • We expect very muted earnings growth over the next two years with no major AEI kicker.
  • Funan Mall redevelopment on track to be completed by 4Q19.
  • Maintain Hold with a slightly higher TP of S$2.05.

1Q17 results highlights 

  • CT’s 1Q17 revenue and NPI were down 4.3%/6.1% yoy to S$172m/S$120m, dragged by income vacuum from Funan Mall, which was closed from July 16 for redevelopment.
  • There was also slightly higher property tax expense. Distributable income of c.S$97m (DPU: 2.73 Scts) was unchanged compared to a year ago as the trust retained a smaller 10% of income (vs. 16% in 1Q16).

Portfolio occupancy high but negative reversions deepen 

  • Portfolio occupancy remained high at 97.7%, although lower than 4Q16’s 98.5%, with slightly higher vacancy at Plaza Singapura, Raffles City, Westgate and Bedok Mall. 
  • CT saw a 2.3% negative rental reversion over the preceding period, for the 398,77sf of space it re-contracted during the quarter, due in part to the renewal of major tenant leases at Westgate and Bedok Mall. 
  • Shopper traffic and tenant sales also slipped 0.5%/0.7% yoy due to seasonality factors as well as cautious consumer spending.

We expect muted earnings growth over the next two years 

  • Looking ahead, CT has 14.5% and 29.4% of leases due to be renewed for the remainder of FY17 and FY18, respectively. Against a backdrop of a competitive retail market and cautious consumer sentiment, we anticipate continued pressure on rents.
  • With marginal upgrading works at Tampines Mall completed and Raffles City still undergoing AEI, we expect earnings growth to be very muted over the next two years.

Redevelopment of Funan Mall in progress 

  • The construction of Funan has reached the piling works stage and the showsuite is expected to be open towards the end of April. An estimated S$7.5m of the projected S$560m capex has been spent in 1Q. 
  • Based on a target gearing of 40%, CT would have estimated debt headroom of S$500m-600m to fund this capex requirement. In addition, CT has a manageable S$150m to be refinanced this year.

Maintain Hold 

  • We leave our FY17-19 DPU estimates unchanged but lift our DDM-based target price marginally to S$2.05 as we adjust our Singapore discount rate. 
  • Maintain our Hold call on the lack of near-term catalysts. 
  • Key upside risk to our call would be a recovery in consumer spending and better-than-expected rental reversion performance. 
  • Downside risks are worse-than-expected negative rental reversion.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | 2017-04-20
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 2.05 Same 1.980