CapitaLand Mall Trust - CIMB Research 2018-01-24: Upgrade On Valuation

CapitaLand Mall Trust - CIMB Research 2018-01-24: Upgrade On Valuation CAPITALAND MALL TRUST C38U.SI

CapitaLand Mall Trust - Upgrade On Valuation

  • CapitaLand Mall Trust's 4Q/FY17 DPU of 2.9 Scts/11.16 Scts is largely in line, with FY17 at 103% of our full-year projection. 
  • Rental reversions still negative but stabilising.
  • Strengthening portfolio through repositioning.
  • Upgrade to ADD with a higher Target Price of S$2.25.

4Q17 results highlights 

  • CapitaLand Mall Trust posted a 1.8% rise in 4Q17 gross revenue to S$172.4m while distribution income came in at S$102.9m. DPU of 2.9 Scts made up 26% of our FY17 forecast. 
  • For the full year, gross revenue fell 1.1% to S$682.5m due to income vacuum from the closure of the Funan Mall in mid-2016. FY17 DPU of 11.16 Scts improved 0.4% y-o-y as the trust paid out a higher 95.8% of income vs. 92.9% in FY16.

Rental reversions still negative but stabilising q-o-q 

  • CapitaLand Mall Trust renewed 21% of portfolio NLA in FY17 at a negative reversion rate of 1.7%, flat compared to a quarter ago. Performance was dragged by tenant remixing at Tampines Mall, Westgate and Bedok Mall. Excluding the latter two malls, rental reversion would have been at +0.2%. 
  • Meanwhile, shopper traffic fell 0.3% y-o-y while tenants’ sales held steady. Consequently, occupancy cost dipped to 18.7%.

Continues to strengthen portfolio through repositioning 

  • CapitaLand Mall Trust has 28.1% and 30.7% of gross rental income expiring in FY18 and FY19, respectively. Malls with a higher proportion of renewals include Lot One and Bukit Panjang Plaza. Management indicated that it may look to undertake selective asset enhancements at these properties to right-position them. 
  • In addition, tenant remixing at Westgate and Bedok Mall is expected to continue. While this could result in some short term income volatility, we believe this will likely strengthen these malls for the future.

Gearing at 34.2% 

  • CapitaLand Mall Trust’s gearing stands at 34.2%, a slight decline from 34.7% in 3Q. In addition to having funding capacity for the Funan redevelopment, we believe the trust can also look for inorganic growth opportunities. 
  • Interest cost averaged 3.2%, unchanged q-o-q. An estimated 16% of its debt is due to be refinanced in FY18.

Upgrade to ADD on valuation 

  • We tweak up our FY18-19 DPU projections post results. As we roll our assumptions forward, our DDM-based Target Price is raised to S$2.25
  • CapitaLand Mall Trust’s share price has lagged the recent run-up in the S-REIT sector. Despite being the market cap leader, current DPU yield of 5.3% is on par with its comparable peers. Hence, we upgrade our rating to ADD from Hold. 
  • Re-rating catalysts could come from an earlier-than-anticipated completion of its development properties. 
  • Downside risks include a slower recovery in rental reversions.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2018-01-24
CIMB Research SGX Stock Analyst Report ADD Upgrade HOLD 2.25 Up 2.150