CapitaLand Mall Trust - OCBC Investment 2017-07-24: Firm Cap Rate Compression

CapitaLand Mall Trust - OCBC Investment 2017-07-24: Firm Cap Rate Compression CAPITALAND MALL TRUST C38U.SI

CapitaLand Mall Trust - Firm Cap Rate Compression

  • 2Q17 DPU +0.4% YoY.
  • Strong uplift in portfolio valuation.
  • Slight dip in rental reversions.

2Q17 results within our expectations 

  • CapitaLand Mall Trust (CMT) reported a stable set of 2Q17 results which met our expectations.
  • Although gross revenue declined slightly by 1.3% YoY to S$168.6m, this was offset by lower utilities and maintenance expenses, resulting in a 1.2% YoY growth in NPI to S$117.6m. The fall in gross revenue was largely attributed to the ceasing of operations at Funan from 1 Jul 2016 since it is being redeveloped. 
  • DPU inched up 0.4% YoY to 2.75 S cents, even though CMT had retained S$2.6m of its taxable income available for distribution during the quarter (2Q16: nil).
  • For 1H17, CMT’s gross revenue was down 2.9% to S$340.7m and formed 49.8% of our FY17 forecast. DPU of 5.48 cents represented a marginal uptick of 0.2% and constituted 49.6% of our full-year projection. 
  • Operationally, CMT saw a mild negative rental reversion of 1.6% in 1H17, given the drag from Bedok Mall (-7.4%) and Westgate (-10%). However, shopper traffic (+0.4%) and tenants’ sales psf per month (flat) were stable. 
  • Overall portfolio occupancy was 98.6%, versus 97.7% as at end-1Q17.

Firm compression in cap rates resulting in higher valuations 

  • CMT’s portfolio valuation saw a net increase of S$207.5m, as at 30 Jun 2017, given a firm tightening in cap rates by as much as 50 bps assumed by the independent valuers, although this was partially offset by a moderation in rental growth assumptions by 50 bps. We believe this was driven by the recent prominent market transaction in which Jurong Point was sold to Mercatus Co-operative (one of the NTUC social enterprises) at an estimated net yield of 4.2% (S$3,343 psf on commercial NLA). 
  • Within CMT’s portfolio, only Westgate (30% interest) saw a decline in valuation which was largely due to lower rent reversions coupled with more conservative market rental forecast in light of the competitive environment in the western region of Singapore.

Maintain BUY 

  • In terms of financial position, CMT’s aggregate leverage was 34.7%, as at 30 Jun 2017, which is 0.6 ppt lower than the preceding quarter. 
  • Given this in-line set of results, we retain our forecasts. Maintain BUY and S$2.20 fair value estimate on CMT.

Wong Teck Ching Andy CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-07-24
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 2.20 Same 2.20