CapitaLand Mall Trust - DBS Research 2019-01-24: Surpassing Expectations


CapitaLand Mall Trust - Surpassing Expectations

  • CapitaLand Mall Trust’s 4Q18 DPU of 2.99 Scts (+3.1% y-o-y).
  • Positive rent reversions and occupancy uplift a positive sign.
  • Westgate leads growth, but 2019 spotlight to be shared with Funan, which is currently 80% committed on an active leasing basis.
  • Maintain BUY with Target Price of S$2.44.

What’s New

4Q18 DPU of 2.99 Scts

  • CAPITALAND MALL TRUST (SGX:C38U) delivered yet another solid quarter as it returned to growth in FY18.
  • 4Q18 and FY18 DPU of 2.99 Scts (+3.1% y-o-y) and 11.5 Scts (+3% y-o-y) respectively came in above our expectations.
  • While there were several factors at play, the growth in distributions was mainly attributed to the Westgate acquisition (which was completed on 1 November 2018) and further improvements on the operational front.

On an improving trend

  • We also note the broad-based improvement in NPI across CapitaLand Mall Trust’s portfolio malls, particularly for its suburban assets. Coupled with contributions from Westgate, they more than offset the income vacuum left by the sale of Sembawang Shopping Centre in June 2018.
  • NPI growth was up 2.1% y-o-y on average, as steady improvements across CapitaLand Mall Trust’s larger malls offset weakness at JCube and Bukit Panjang Plaza. On the back of ongoing upgrading works at the adjacent hotels, the trading environment at Raffles City remained subdued.
  • Led by the backfilling at Clarke Quay, portfolio occupancy returned to 99.2% (4Q18) from 98.5% (3Q18).
  • The quantum of portfolio rental reversions – at +0.7% for FY18 while unexciting at first glance, reflects sequential improvement. We believe that this is a positive signal that things are improving and that pressures in the retail space are bottoming out.
  • The reversal of tenant sales trends back into positive territory (+0.5%) in FY18 and moderation in occupancy costs y-o-y further affirm this.

(-/+) Higher gearing levels on the back of Westgate acquisition, but remains within target range

  • Following the Westgate acquisition, which was 65% debt-funded, gearing rose sequentially from 31.7% (3Q) to 34.2% (4Q).
  • While average cost of debt was stable at c.3.1%, the average term to maturity was shortened from 5.2 to 4.4 years.

Onward to a better 2019

  • The Manager is cognisant of frictional impact on footfall post the launch of Jewel, but believes that malls within the Tampines cluster should remain resilient given defensive attributes.
  • The worst is certainly over for Westgate, which led growth among CapitaLand Mall Trust’s portfolio malls, and is set to fare better ahead as it emerges from the completion of its AEI and new concept launches.
  • Funan, which is poised for launch at the end of 2Q19, is also seeing improved leasing momentum. According to the Manager, the mall has already achieved commitments of c.80% (from 70% in November), on an active leasing basis.
  • For FY19F-20F, we believe that incremental contributions from Westgate and the return of Funan would help accelerate CapitaLand Mall Trust’s DPU growth momentum.
  • Plans to take on selective AEI and redevelopment opportunities at lower-performing malls may provide further upside over the medium term.

Derek TAN DBS Group Research | Mervin SONG CFA DBS Research | Carmen TAY DBS Research | https://www.dbsvickers.com/ 2019-01-24
SGX Stock Analyst Report BUY MAINTAIN BUY 2.440 SAME 2.440