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

CAPITALAND MALL TRUST (SGX:C38U) | SGinvestors.io 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).



The Positives


+ Acquisition of remaining 70% of Westgate approved.

  • 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. 

+ Stable portfolio occupancy despite ongoing AEI at Westgate and Tampines Mall.

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



The Negatives


- Tepid tenant sales growth and continued decline in shopper traffic.

  • 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.


Outlook

  • 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.


Maintain NEUTRAL with adjusted target price of S$2.09 (prev S$2.05).

  • 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



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