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

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.
  • Maintain ADD. Our Target Price is intact at S$2.25.

1Q18 results highlights 

  • 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).

Positive rental reversion despite slower sales and traffic 

  • 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.

New AEI to rejuvenate Tampines 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.

Divestment of SSC at significant premium to book 

  • 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%.

Maintain ADD 

  • 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 | 2018-04-20
SGX Stock Analyst Report ADD Maintain ADD 2.250 Same 2.250