CapitaLand Mall Trust - Phillip Securities 2018-10-26: Journey To The West

CAPITALAND MALL TRUST (SGX:C38U)

CapitaLand Mall Trust - Journey To The West

Acquisition of remaining 70% of Westgate approved by unitholders on Oct 25. Funding via private placement (c.S$245.6mn) and debt (c.S$552mn) will be accretive to FY18e and FY19e DPU. Targeted completion of transaction by Nov 1.
CapitaLand Mall Trust’s 3Q18 NPI/DPU within our estimates. 9M18 NPI/DPU at 75% and 74% of our FY18e estimates.
Tepid tenant sales growth, dragged by F&B sector, CapitaLand Mall Trust’s biggest tenant sector by GRI. Shopper traffic continued to decline for the third consecutive quarter this year.
Maintain NEUTRAL with adjusted Target Price of S$2.09 (prev S$2.05).

CapitaLand Mall Trust’s unitholders have approved the acquisition of the remaining 70% of Westgate (through Infinity Mall Trust (IMT)) on Oct 25. Total acquisition outlay of S$797.6mn (excl. Acquisition fee of S$7.9mn that will be paid in units) will be funded via a c.S$245.6mn Private Placement and the remaining via debt (S$392mn of which are bank loans owed by IMT).
Assuming CapitaLand Mall Trust’s current funding cost of 3.2%, this funding structure of c.70% debt would be accretive to FY18e and FY19e DPU. Transaction is expected to be completed by Nov 1 and contribution from the remaining 70% of Westgate will commence then.

Occupancy remains stable at 98.5%, with > 97% occupancy achieved at its top four malls (by GRI) – Plaza Singapura, IMM, Bugis Junction, Tampines Mall.

Tenant sales was flat (+0.5% y-o-y) for 9M18 with tenant sales growth for the food & beverage (F&B) sector (the largest trade sector contributor by GRI; 31% of CapitaLand Mall Trust’s FY17 GRI) still leaving much to be desired (+0.1% y-o-y for 9M18 vs -0.6% y-o-y for 1H18). Shopper traffic continued to decline for the third consecutive quarter this year, by -1.8% y-o-y for 9M18.

Catalysts for growth would be the contribution from the remaining 70% of Westgate and the upcoming completion of Funan. As at end-Sep, leases signed and in advanced negotiations at Funan reached 70% (retail) and 60% (office) – subsequent to this, one of Funan’s anchor tenants, Newstead Technologies, filed for liquidation. This might affect the amount of contribution from Funan that will start coming in in 2H19.
On recurring revenue, rental reversions have weakened to 0.6% in 9M18 (1H18: 0.8%). We opine that tenant sales would need to catch up for more meaningful upsides in rental growth.

This translates to a FY18e yield of 5.2% and P/NAV of 0.99x. We adjust our DPU estimates - and correspondingly, our target price - upwards to factor in the contribution from the remaining 70% of Westgate.
In addition, there have been adjustments on assumptions on rental rates and financing costs, following a change in analyst.

Tara WONG Phillip Securities Research | https://www.stocksbnb.com/ 2018-10-26

SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 2.09 UP 2.050