CapitaLand Mall Trust - RHB Invest 2019-03-14: Funan Opening Fully Priced In; Stay NEUTRAL


CapitaLand Mall Trust - Funan Opening Fully Priced In; Stay NEUTRAL

  • Remain NEUTRAL, Target Price rises by 3% to SGD2.20, 8% downside with 7% FY19F yield.
  • CapitaLand Mall Trust’s share price has performed well YTD – up 6% (S-REITs/STI: +9/+4%), mainly on optimism over Funan Mall’s opening, and the bottoming of retail rental rates. We believe positives are fully priced in and valuations are fair – it is trading at 1.2x P/BV.
  • While retail rental seems to stabilising, we do not expect any strong growth in rates in the near term.

Tampines Mall could face some rental pressure from Jewel opening.

  • About 1.1m sqf of new retail space is expected to come on-stream this year, with Jewel Changi Airport (Jewel, NLA: 0.6m sqf) being the largest mall. While space at Jewel is nearly fully pre-committed, we expect its opening to result in shopper traffic being diverted from other malls in the eastern region. With CapitaLand Mall Trust (SGX:C38U)’s key asset Tampines mall (12% of FY18 NPI) being among the bigger ones nearby, we expect it to see some pressure in rental reversions ahead.
  • On retail demand, while the retail sales index rose 7.6% y-o-y in January, we believe this was mainly on one-off factors like pre-Lunar New Year shopping – do not expect growth to be sustained for the rest of the year.

Funan Mall’s committed occupancy rate at 80%.

  • The revamped Funan Mall and office complex is expected to be open by end-2Q19 (June) with committed occupancy rates for both at c.80%, exceeding our 70% estimate. We expect average retail rental rates for the mall to be around SGD12-14psf, while the office rates could be c.SGD 8-10psf.
  • Note that CapitaLand Mall Trust already divested its serviced residences, at a gain of SGD20.6m in 2017. Management guided that it is still on track to achieve its yield-on-cost of 6.5% for the asset.

Westgate ramping up nicely post asset enhancement.

  • After acquiring the remaining 70% stake in Nov 2018 CapitaLand Mall Trust now owns 100% of Westgate. Management noted that the asset has been performing well after its asset enhancement, and sees room for more upside from the mall.
  • Other than this, CapitaLand Mall Trust also plans to reposition J-Cube and Lot One shopping malls, which have been recording a slightly weaker performance.

Gearing is comfortable at 34.2%

  • Gearing is comfortable at 34.2%, giving CapitaLand Mall Trust an ample debt headroom of SGD1bn for acquisitions (40% being a comfortable level).
  • In recent briefings, management reiterated its preference for Singapore malls, but may selectively look at overseas assets, since options at home are limited.

Earnings adjustments.

  • We lift FY19-21F DPU by 1-3%, to reflect the higher occupancy and rental rates for Funan Mall and Westgate.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-03-14
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 2.20 UP 2.140