CapitaLand Mall Trust - Phillip Securities 2018-04-23: Sale Of Sembawang Shopping Centre At 2x FY17 Valuation

CapitaLand Mall Trust - Phillip Securities 2018-04-23: Sale Of Sembawang Shopping Centre At 2x Fy17 Valuation CAPITALAND MALL TRUST C38U.SI

CapitaLand Mall Trust - Sale Of Sembawang Shopping Centre At 2x Fy17 Valuation

  • CapitaLand Mall Trust (CMT)'s 1Q18 NPI and DPU within our estimates.
  • Higher occupancy and lower operating expenses supported 1.8% y-o-y increase in DPU.
  • Overall tenant sales still sluggish, but with a few outperforming sub-sectors.
  • Sale of Sembawang Shopping Centre (SSC) at 1.97x FY17 valuation a positive surprise.
  • Maintain NEUTRAL with higher Target Price of S$2.05 (from S$2.03) to account for divestment gains.



Results at a glance


+ Higher occupancy and lower operating expenses propped up DPU amidst still challenging operating environment in terms of tenant sales. 

  • These came against the backdrop of flat rental reversions and tenant sales y-o-y. We are heartened to see the moderation in negative rental reversion (-1.7%) from FY17. Nonetheless, we believe tenant sales need to improve for this trend to sustain, given the elevated occupancy cost of 18.7%.

+ Sale of Sembawang Shopping Centre to Lian Beng at 1.97x FY17 valuation a positive surprise.

  • This translates to an exit cap rate of c.2.6%. We think the willingness of the buyer to pay the huge premium boils down to the 999-year lease of Sembawang Shopping Centre. Leases of the other malls in CMT’s portfolio range from 60-99 years. 
  • Sembawang Shopping Centre represents < 2% of Group total investment properties as at FY17.

+ No more debt expiries in FY18. 

  • Management refinanced S$605mn worth of loans and a 6-year MTN in 1Q18. These loans were due to expire in 2018. Refinancing were done at lower interest rates (albeit using loans with shorter tenures ranging from 1-4 years). There is no more debt expiring in 2018 and hence little refinancing risk this year.


The negatives


- Overall tenant sales still sluggish, down 0.2% y-o-y.

  • This is comparable to the flat y-o-y change for FY17. The three biggest trade sectors by GRI (F&B, Fashion, Beauty and Health) continue to struggle to post meaningful y-o-y sales growth. These sectors contribute c.55% of FY17 GRI.


Outlook

  • Despite generally rising interest rates, financing costs for FY18 should remain stable with the re-financing of expiring loans with shorter tenure debt at lower interest costs. 
  • Divestment proceeds from Sembawang Shopping Centre could also be used to further pare down debt and for Funan’s redevelopment capex. We have assumed a S$3mn/S$6mn cash top-up from divestment proceeds to DPU for loss in income from Sembawang Shopping Centre in FY18e/FY19e. 
  • Our DPU forecasts remain unchanged. Tenant sales has not picked up enough for us to foresee a more meaningful uptick in rental reversions.


Maintain NEUTRAL with higher target price of S$2.05 (from $2.03).

  • We adjust our forecast to factor in the Sembawang Shopping Centre divestment. Increase in target price is factoring in divestment gains of c.S$122mn and our assumption of cash top-ups to DPU from FY18-FY20 in the absence of Sembawang Shopping Centre’s rental income.





Dehong Tan Phillip Securities | https://www.stocksbnb.com/ 2018-04-23
SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 2.05 Up 2.030



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