CapitaLand Mall Trust - OCBC Investment 2018-07-23: This Is Home Truely, Where I Know I Must Be

CapitaLand Mall Trust - OCBC Investment Research 2018-07-23: This Is Home Truely, Where I Know I Must Be CAPITALAND MALL TRUST SGX:C38U

CapitaLand Mall Trust - This Is Home Truely, Where I Know I Must Be

  • 2Q18 DPU +2.2% y-o-y. 
  • Rental reversions +0.8%. 
  • Next acquisition likely still in SG. 

2Q18 results within our expectations

  • CapitaLand Mall Trust’s (CMT) 2Q18 results met our expectations. Gross revenue and NPI rose 1.6% and 2.8% y-o-y to S$171.4m and S$120.8m, respectively. DPU rose 2.2% y-o-y to 2.81 S cents even though CMT retained a higher amount of its taxable income available for distribution to unitholders (S$4.6m versus S$2.6m in 2Q17).
  • We believe this would be our FY18 forecast.
  • Overall portfolio occupancy fell 0.9 ppt q-o-q to 98.0% due largely to higher vacancy rate at Clarke Quay (+8.4 ppt). Rental reversions came in at 0.8% for 1H18, unchanged as compared to 1Q18. However, shopper traffic dipped 2.4% y-o-y (1Q18: -2.1%), while tenants’ sales psf also slipped marginally by 0.2% for 1H18. CMT registered a valuation gain of S$55.5m on its investment properties. There was a 10-15 bps compression in cap rates adopted by the valuer, but partially offset by a slight moderation in the rental growth rate assumptions.

Remaining 70% stake in Westgate a potential acquisition target?

  • CMT’s aggregate leverage ratio stood at 40%. Management’s preference remains in Singapore, although it is also open to overseas inorganic growth opportunities.
  • We believe the acquisition of the remaining 70% stake not owned by CMT in Westgate is a possibility over the near-term horizon. This is because
    1. Westgate appears to be stabilising,
    2. CMT has significant debt headroom for acquisitions, and
    3. CapitaLand, which owns the remaining 70% stake in Westgate, is always looking for capital recycling opportunities to boost its ROE.
  • We retain our forecasts but lower our FTSE ST REIT Index’s -2.2% and 5.9% total returns, respectively. We believe investors can consider locking in some profits at current price level. Downgrade to HOLD.
  • FY19F distribution yield of 5.3% is approximately 0.9 standard deviations below its 5-year mean.

Wong Teck Ching Andy CFA OCBC Investment Research | 2018-07-23
SGX Stock Analyst Report HOLD Downgrade BUY 2.10 Down 2.260