CapitaLand Mall Trust - CGS-CIMB Research 2019-04-24: Boosted By Westgate


CapitaLand Mall Trust - Boosted By Westgate

  • CapitaLand Mall Trust's 1Q19 DPU of 2.88 Scts in line with estimates, at 24.9% of our FY19 forecast.
  • Expect better 2H as new contributions from Funan filters in gradually.
  • Maintain HOLD with a slightly higher Target Price of S$2.39.

1Q19 results highlights

  • CAPITALAND MALL TRUST (SGX:C38U) reported a 10% y-o-y rise in 1Q19 gross revenue to S$192.7m while net property income rose 11.5% y-o-y to S$140.1m due to acquisition of the remaining 70% stake in Westgate in Nov 2018 as well as better operating performance across most malls within its portfolio, albeit partly offset by the divestment of Sembawang Shopping Centre in Jul 2018.
  • Distributable income came in at S$106.3m (payout ratio of 87.5%) and translates to a DPU of 2.88 Scts, up 3.6% y-o-y.

Positive rental reversion trend continues

  • Portfolio occupancy slipped slightly to 98.8% as at end-1Q19 (vs. 99.2% at end-4Q18) due to continued asset enhancement initiatives.
  • CapitaLand Mall Trust saw a 2% y-o-y increase in shopper traffic portfolio-wide whilst tenant sales psf slipped 0.4% y-o-y.
  • Nonetheless, CapitaLand Mall Trust achieved a positive reversion of 1.2% for leases renewed in 1Q19, at a 88.9% retention rate. The highest reversions were felt at IMM Building and Clarke Quay, ranging between 3% and 4.2%. In addition, Tampines Mall and Bedok Mall enjoyed better gross revenue growth coming from higher rental income as well as improved other income.

New contributions from Funan to be felt from 2H19F

  • The trust has a further 19.1% and 27.7% of gross rental income to be re-contracted in FY19 and FY20, respectively. We anticipate rental growth to remain relatively anaemic as the influx of 1m sq ft of new incoming retail space could result in some short-term competition.
  • Management indicated it would continue to adopt a proactive asset management strategy including potential asset enhancement of its older assets, as well as redevelopment and acquisition opportunities.
  • Nonetheless, CapitaLand Mall Trust’s 2H19F earnings growth is also likely to be underpinned by gradual contributions from Funan. The lifestyle mall is scheduled to open in mid 2019 and is currently 90% pre-leased.

Gearing remains stable at 34.4%

  • CapitaLand Mall Trust’s balance sheet is healthy, with gearing of 34.4% as at end-1Q19, with average interest cost at 3.2% and average term to maturity at 4.2 years.
  • In Apr, CapitaLand Mall Trust will use the proceeds from its issue of US$300m fixed rate notes (swapped into S$407.1m) to refinance existing borrowings. It has a remaining c.S$360m of debts to be refinanced for the remainder of this year.

Maintain HOLD

  • We adjust our FY19-21 DPU forecasts marginally post results. However, our DDM-based Target Price is raised to S$2.39 on lower cost of equity assumption of 7.2% (vs. 7.5% previously) due to a more benign interest rate outlook.
  • Upside risks to our call include better-than-expected performance from Funan and Westgate.
  • Downside risks include slower-than-expected rental growth.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | 2019-04-24
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.39 UP 2.290