CapitaLand Mall Trust - UOB Kay Hian 2018-10-26: 3Q18 Slightly Above


CapitaLand Mall Trust - 3Q18: Slightly Above

  • CapitaLand Mall Trust (CMT)’s 3Q18 results beat expectations.
  • CMT saw rents and occupancies (except for IMM) stabilising across the board.
  • Maintain HOLD with a target price of S$2.02. Entry price: S$1.84. 

CapitaLand Mall Trust 3Q18 Results 

Results slightly above expectations; maintain HOLD with an unchanged target price of S$2.02

  • .. based on DDM (required rate of return: 6.95%, terminal growth: 2.0%).
  • CapitaLand Mall Trust reported a 3Q18 DPU of 2.92 S cents, up 5.0% y-o-y. 3Q18 gross revenue and NPI grew by 0.7% y-o-y and 1.1% y-o-y respectively. The increase was driven by higher contributions from Junction 8 Shopping Centre, IMM, Plaza Singapura, Bedok Mall, and Tampines Mall, and partially offset by the absence of contributions from Sembawang Shopping Centre (ie divested on 18 Jun 18) as well as lower occupancy and rental rates contracted on new and renewed leases from JCube and Bukit Panjang Plaza.
  • The results came in slightly above our expectations, with 9M18 DPU representing 78% of our full-year estimate.

Occupancy increased marginally (+0.5ppt q-o-q) to 98.5%, significantly higher than market level of 92.7%.

  • Occupancies increased across its constituent malls, with the most notable exception being IMM (-0.6ppt q-o-q).

Changing consumer preferences.

  • Shopper traffic declined (1.8% yoy) in 9M18.
  • Tenants' sales per month saw a marginal improvement (+0.5%yoy for 9M18 ytd) at around S$85 psf pm. Tenants' sales of "Electrical & Electronics" and "Sporting Goods" saw greater growth with y-o-y growth of 10.6% and 9.9% respectively. "Toys & Hobbies" and "Gifts & Souvenirs" sales declined the most at 6.6% and 10.6% y-o-y respectively.

Retail rents (+0.6%) see stabilisation.

  • Among the best performing malls were Clarke Orchard (+2.9%), Junction IMM Tampines (+2.1%).
  • Some of the malls experienced negative reversions, including City (-2.1%) and Mall (-1.5%).

Mid-term rental outlook remains positive.

  • Prime retail rents in Orchard Road (+0.8% q-o-q, +1.3% y-o-y) and the suburban segment (+0.2%qoq, +1.2% y-o-y) continued rising, according to CBRE data. Leasing demand was supported by openings (by new entrants) and expansions (by existing tenants).
  • During the quarter, we continued to see F&B and other activity-based tenants (like gyms, arcades, and cooking studios) driving demand, while grocery players (eg Dairy Farm's hypermarket Giant) have consolidated their operations amid competition from online platforms.
  • Supply of another 0.25m sf and 1.54m sf in NLA of retail space are expected to come on stream in 2018 and 2019. However, demand for prime retail spaces remains healthy, with key projects, such as the Paya Lebar Quarter and Jewel Changi Airport (> 90%) already attaining stellar pre-commitment rates.

Gearing increased to 317% (vs 31.5% in 2Q18)

  • Post CapitaLand raised S$2731m to finance the acquisition for 0% of Westgate, which we expect will lower gearing to c.309%.

Westgate and Funan update.

  • CapitaLand Mall Trust has gained unitholders’ approval at their EGM for the proposed acquisition of the balance 70% stake of Westgate, which is targeted to complete on 1 Nov 18.
  • AEI works are also being carried out at Westgate and Tampines Mall, and scheduled to complete in 4Q18.
  • Funan (which is undergoing redevelopment) is set to open in 2Q19, and has already seen leases and pre-commitments of 70% (retail) and 60% (office), with revenue contribution expected from 2H19.

Maintain HOLD with an unchanged target price of S$2.02.

  • Our valuation is based on DDM (required rate of return: 6.95%, terminal growth: 2.0%). Entry price: S$1.84.

Peihao LOKE UOB Kay Hian Research | Andrew CHOW CFA UOB Kay Hian | 2018-10-26
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.02 SAME 2.02