CapitaLand Mall Trust - UOB Kay Hian 2019-05-27: Beneficiary Of Jurong Lake District; Funan Coming On Stream In Jun 19; Upgrade To BUY

CAPITALAND MALL TRUST (SGX:C38U)

CapitaLand Mall Trust -Beneficiary Of Jurong Lake District; Funan Coming On Stream In Jun 19; Upgrade To BUY

CAPITALAND MALL TRUST (SGX:C38U) benefits from the development of JLD as it has three retail malls, namely IMM Building, JCube and Westgate, which account for 20% of portfolio valuation, located within Jurong Gateway.
Funan is about 90% pre-committed for retail space and 98% pre-committed for office space and is scheduled to open in Jun 19. We estimate that Funan will contribute rental income of S$16.5m in 3Q19, representing 8% of total gross revenue.
Upgrade to BUY. Target price: S$2.65.

Master Plan 2019 calls for the development of Jurong Lake District (JLD), comprising commercial hub Jurong Gateway and leisure precinct Lakeside, as Singapore’s second central business district (CBD). JLD is located in close proximity to Tuas Mega Port (open in phases starting 2021), industrial estates in Jurong and Tuas, Jurong Island (petrochemical), International Business Park and two renowned national universities. Jurong Gateway serves as an ideal hub for the 3,000 MNCs and global businesses operating in the vicinity. It will have 5.4m sf of office space, 2.7m sf of retail, F&B and entertainment space and 2,800 hotel rooms.
Jurong Gateway is currently served by the North-South and East-West MRT lines. Connectivity will be enhanced when Jurong Regional and Cross Island MRT lines are completed in 2025 and 2030, respectively. The terminal for the future Kuala Lumpur- Singapore High-Speed Rail will also be situated within the JLD, should Singapore and Malaysia arrive at a consensus.
CapitaLand Mall Trust is prime beneficiary of growth from JLD. It owns three retail malls IMM Building, JCube and Westgate located within Jurong Gateway and adjacent to Jurong East MRT station, which in aggregate currently accounts for 20% of CapitaLand Mall Trust’s portfolio valuation.
See also report: Property – Singapore - URA Master Plan 2019 ~ Injecting Vibrancy Into Our Global City.

Funan, which is 85% larger than its predecessor Funan DigitaLife Mall (closed since Jul 16), is scheduled to open in Jun 19.
The retail mall is designed to integrate online and offline shopping with data analytics and logistic functions to empower modern retailers’ omni-channel strategy. It has a 24-hour click-and-collect drive-through supported by warehousing facilities. It deploys automated guided vehicles (AGVs) with laser-based navigation system to pick up purchases from retail shops for temporary storage at click-and-collect boxes (shoppers do not have to carry shopping bags). The mall has an underpass link to City Hall MRT station (interchange for North-South and East-West MRT lines).

Funan’s two grade-A office blocks with NLA of 214,000sf are 98% pre-committed (key tenants are three government agencies Attorney General’s Chambers, Department of Statistics and Smart Nation & Digital Government Office and co-working operator WeWork).
Management expects Funan to provide yield-on-cost of 5%. We estimate Funan to contribute rental income of S$16.5m in 3Q19, representing 8% of total gross revenue.

CapitaLand Mall Trust is the first S-REIT to be listed on SGX. Suburban malls in the HDB heartland accounted for 53% of CapitaLand Mall Trust’s portfolio valuation. It owns three retail malls - IMM Building, JCube and Westgate located within Jurong Gateway - which in aggregate accounted for 20% of portfolio valuation. It also owns Tampines Mall located within Eastern Gateway, which accounted for 10% of portfolio valuation.

CapitaLand Mall Trust’s portfolio saw positive rental reversion of 1.2% in 1Q19, led by IMM Building (+4.2%), Clarke Quay (+3.0%), Junction 8 (+1.9%), Tampines Mall (+1.7%), Westgate (+1.7%) and Bugis Junction (+1.6%).

CapitaLand Mall Trust undertook refurbishment works at Westgate, such as the enclosure of selected alfresco F&B outlets with air-conditioning, construction of a new entrance from existing taxi stand with escalators connecting to levels 1 and 2, as well as improved visibility for retail stores at Basement 1. Completed in 4Q18, the asset enhancement initiative (AEI) has improved accessibility, attracted footfall, increased dwell time and enhanced overall shoppers’ experience at Westgate.

We have revised our forecast for DPU higher by 12% for 2019 to factor in contribution from Funan.

Our target price of S$2.65 is based on DDM (required rate of return: 6.5%, terminal growth: 1.5%).

Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2019-05-27

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