CapitaLand Mall Trust - CIMB Research 2018-04-20: Positive Rental Reversions In 1Q18

CAPITALAND MALL TRUST C38U.SI

CapitaLand Mall Trust - Positive Rental Reversions In 1Q18

CapitaLand Mall Trust’s 1Q18 DPU was in line with expectations, at 25.1% of our FY18 forecast.
Topline growth was from higher occupancy, positive rental reversions for most assets.
CapitaLand Mall Trust expects new AEI to rejuvenate Tampines Mall to be completed by 4Q18.
CapitaLand Mall Trust announced that sale of Sembawang Shopping Centre will generate S$119.6m net gains.

CapitaLand Mall Trust’s 1Q18 DPU of 2.78 Scts, +1.8% y-o-y, was in line with our expectations, at 25.1% of our full-year forecast.
The growth was underpinned by a 2% y-o-y expansion in gross revenue, largely from higher portfolio occupancy of 98.9% and a 4.7% decline in operating expenses as well as a slightly higher payout ratio of 90.7% (vs. 90% in 1Q17).

CapitaLand Mall Trust renewed 7.8% of its portfolio NLA in 1Q18 at an average 0.8% positive rental reversion, despite drags from Westgate, Bedok Mall and Raffles City, which are affected by tenant remixing and AEIs. Tenant retention rate was 82.9%. Shopper traffic and tenants sales slipped -2.1% y-o-y and -0.2% y-o-y respectively.
CapitaLand Mall Trust has 20.2% of gross rental income expiring for the rest of FY18 and 31.1% in FY19. The bulk of this will be at Tampines Mall, IMM Building, Plaza Singapura and Lot One Shoppers’ Mall.

CapitaLand Mall Trust plans to rejuvenate Tampines Mall with the next phase of asset enhancement works. The S$8.2m asset enhancement initiative (AEI), to be completed by 4Q18, includes demolition of an existing pavilion and constructing a new F&B duplex, enhancing the mall façade and new flooring for the external walkway.

CapitaLand Mall Trust just announced the divestment of Sembawang Shopping Centre (SSC) for $248m (vs. its Dec 17 BV of S$126m) and expects to realise a net gain of S$119.6m. The transaction is expected to be completed by mid-Jun 18.
CapitaLand Mall Trust indicated that the proceeds will further strengthen its financial flexibility. Assuming all the proceeds are utilised to repay bank borrowings, this transaction is likely to have a neutral impact on earnings but could lower the current gearing of 33.5% at end-1Q18 to c.31.6%.

We tweak our FY18-20 DPU estimates slightly to adjust for the pending sale of Sembawang Shopping Centre as well as factor in a slight divestment gain to provide a stable FY18 and FY19 DPU. We maintain our ADD rating and DDM-based Target Price of S$2.25.
Re-rating catalysts could come from earlier-than-scheduled completion of 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/ 2018-04-20

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