CapitaLand Mall Trust (CT SP) - Maybank Kim Eng 2018-01-01: Is Mall The Merrier?

CapitaLand Mall Trust (CT SP) - Maybank Kim Eng 2018-01-01: Is Mall The Merrier? CAPITALAND MALL TRUST C38U.SI

CapitaLand Mall Trust (CT SP) - Is Mall The Merrier?

Initiate coverage with HOLD, SGD2.15 TP 

  • CapitaLand Mall Trust (CMT) is Singapore’s largest retail REIT by far, with its sponsor CapitaLand ranked amongst Asia’s largest developers. 
  • Its shares underperformed the S-REITs in 2017 (up 21%), and the S’pore market (up 18%), against retail headwinds and a weaker operating outlook. We forecast muted rental growth given upcoming supply. 
  • Valuations at 1.2x P/B are undemanding, but CMT’s share price correlation with an expected improvement in retail sales has weakened, and we see limited near term catalysts; Funan will contribute only from end-2019. 
  • Initiate at HOLD with SGD2.15 DDM-based TP (WACC: 6.9%, LTG: 1.5%).

Muted rental forecasts amid 2018 supply surge 

  • Investor concerns about negative reversions and surging supply in 2018 are well-flagged and valid in our view. 
  • We see a slow recovery for CMT’s 16 properties amid an improving retail sales outlook, and have factored in conservative reversion assumptions in our model; weaker rentals should persist in the near term, with a muted recovery expected towards 2H18. 
  • We also believe that the major assets coming on stream do not pose direct competition to the catchment area of CMT’s malls, given its stronger CBD and western focus, at 50% and 20% of AUM, respectively.

Limited catalysts, looking towards Funan in 2020 

  • Meanwhile, CMT leads with its initiatives to drive innovation by expanding its experiential retail concepts, prioritising digital marketing efforts, and accelerating the roll-out of in-mall distribution functions.
  • These are constructive against rising e-commerce competition, which are likely to impact a smaller 20-25% of CMT’s portfolio, given its diversified tenant profile relative to the other retail REITs.

Stock has been a laggard, and could stay sideways 

  • CapitaLand Mall Trust (CMT)’s shares have underperformed the market and S-REITs since late 2014. Valuations are now at their 15-year historical average, but lack near-term catalysts. 
  • We initiate at HOLD with a DDM-based SGD2.15 TP, and prefer retail REITs with stronger Orchard Road exposure, which could gain from an earlier recovery.

Value Proposition 

  • Singapore’s first REIT, listed on the SGX in Jul 2002, and is the second largest S-REIT and largest in the retail sector with 16 properties valued at SGD10.4b at end-Jun 2017.
  • Backed by sponsor CapitaLand, one of Asia’s largest real estate players with a global portfolio valued at > SGD85b at end-Sep 2017, with ROFR pipeline based on book value estimated at about 27% of its AUM.
  • Strong track record in acquisitions and execution on AEI and rejuvenation works with new retail concepts showcased at the upcoming Funan, reopening at end-2019.

Financial Metrics 

  • We forecast flattish DPUs for FY17-18E with the closure of Funan in Jul 2016 and re-opening at end-2019.
  • We expect negative rental reversions in FY17 and FY18.

Swing Factors


  • Earlier-than-expected pick-up in leasing demand for retail space driving improvement in occupancy.
  • Better-than-anticipated rental reversions.
  • Accretive acquisitions or redevelopment projects.


  • Prolonged slowdown in economic activity could reduce demand for retail space, resulting in lower occupancy and rental rates.
  • Termination of long-term leases contributing to weaker portfolio tenant retention rate.
  • Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.

Chua Su Tye Maybank Kim Eng | 2018-01-01
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 2.15 Up 2.100