CapitaLand Mall Trust (CT SP) - Maybank Kim Eng 2018-01-25: Minding The Store

CapitaLand Mall Trust (CT SP) - Maybank Kim Eng 2018-01-25: Minding The Store CAPITALAND MALL TRUST C38U.SI

CapitaLand Mall Trust (CT SP) - Minding The Store

Forecasts revised post-results; Maintain HOLD 

  • CapitaLand Mall Trust (CMT)’s 4Q/FY17 results were in line with both consensus and our estimates. Looking ahead, we believe investor concerns will centre on negative rental reversions and surging supply in 2018. 
  • We see a slow recovery for CMT’s 16 properties despite an improving retail sales outlook, and have factored in conservative reversion assumptions in our model.  In our view, weaker rentals should persist near term, with a muted recovery towards 2H18. 
  • With limited catalysts and the shares fairly valued, maintain HOLD. We have rolled forward to FY18 and tweaked by 2% our DDM-based Target Price to SGD2.20 (WACC: 6.9%, LTG: 1.5%).

4Q17 in line, FY17 reversion at -1.7% 

  • CapitaLand Mall Trust (CMT) reported 4Q17 DPU of S2.90ct, (+0.7% y-o-y) with healthy portfolio occupancy of 99.2%. FY17 portfolio rental reversion was -1.7%, with Westgate and Bedok Mall the weaker performers - reversions were -10.2% and -6.5%, respectively. 
  • Occupancy cost has pulled back y-o-y from 19.0% to 18.7% in FY17 largely on the back of lower rents and better trade mix, as tenant sales were flat, while shopper traffic rose 0.3% y-o-y.
  • Management shared that Funan AEI works are on track, and remains optimistic of an opening ahead of its scheduled end-2019.

Taking the lead on retail innovations 

  • Against structural challenges brought on by e-commerce disruption, we expect CMT to lead by expanding its experiential retail concepts and prioritising digital marketing efforts. 
  • CMT has pre-leased 20% (40k sf) of its Funan office space to start-up WeWork, and accelerated roll-out of in-mall distribution functions and unmanned collection services at seven of its malls. 
  • We expect e-commerce competition could impact a smaller 20- 25% of CMT’s portfolio vs. 35-40% for Mapletree Commercial Trust given its diversified tenant profile relative to the other retail REITs.

Stock has been a laggard, could trade sideways 

  • CMT shares remain fairly valued based on our DDM-based Target Price and DPU yield at the historical avg. of about 5.5%. However, given the lack of catalysts and business challenges, the shares could continue to underperform the market and S-REITs
  • We maintain HOLD with slightly higher DDM-based Target Price of SGD2.20. 
  • We prefer retail REITs with stronger Orchard Road exposure, which could gain from an earlier recovery, such as SPH REIT (SPHREIT SP; Rating: HOLD; Target Price SGD1.00).

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 | http://www.maybank-ke.com.sg/ 2018-01-25
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 2.20 Up 2.150