CapitaLand Mall Trust - CGS-CIMB Research 2019-10-21: Good Set Of Numbers, But Priced In


CapitaLand Mall Trust - Good Set Of Numbers, But Priced In

  • CAPITALAND MALL TRUST (SGX:C38U)’s 9M19 DPU of 8.86 Scts (+4.1% y-o-y) was within expectations, driven by the acquisition of Westgate and reopening of Funan.
  • Occupancy grew 0.6% pts q-o-q in 3Q19 while rental reversion improved 1.2%. 9M19 tenant sales of top 5 categories by rental income rose 1.2% y-o-y.
  • We believe the market has priced in CapitaLand Mall Trust’s strong DPU growth. Maintain HOLD.

In line 9M19 results

  • CapitaLand Mall Trust reported a 12.8% y-o-y rise in 9M19 gross revenue to S$583.4m while net property income rose 13.1% y-o-y to S$417.5m, driven by Westgate, which it had in Nov 2018 acquired the remaining 70% stake in, as well as the reopening of Funan on 28 Jun 2019.
  • Excluding Westgate and Funan, and the divestment of Sembawang Shopping Centre in Jul 2018, 9M19 revenue was still higher y-o-y. See Capitaland Mall Trust Announcements.
  • 9M19 DPU of 8.86 Scts (+4.1% y-o-y) was in line at 75.6% of our full-year forecast. See Capitaland Mall Trust Dividend History.

Stronger occupancy and rental reversion

  • Portfolio occupancy improved from 98.3% in 2Q19 to 98.9% in 3Q19. All malls reported stronger occupancy q-o-q except for Raffles City (-1% pt) and Lot One (-0.6% pt).
  • 9M19 portfolio rental reversion was +1.2%, with improvement across all malls except Raffles City (-0.5% in 9M19), Clarke Quay (-2.2%) and Bedok Mall (-0.1%). While Clarke Quay experienced weaker rental reversion q-o-q, occupancy was stronger q-o-q as the REIT has been actively changing the profile of the asset. Westgate continued to report positive rental reversion of 3.4% in 9M19.
  • We anticipate rental reversion to remain in low single-digits as we believe the influx of 1m sq ft of new incoming retail space in Singapore could result in some short-term competition while retail sales remain weak.

Tenant sales outperformed Singapore retail sales

  • Although overall tenant sales declined 1.3% in 9M19, tenant sales of its top 5 trade categories which accounted for more than 70% of its gross rental income, increased 1.2% y-o-y. This was much stronger than Singapore’s average 8M19 retail sales growth of -2.8% y-o-y and in line with the growth of its malls’ shopper traffic of 1.3% y-o-y in 9M19.

Maintain HOLD

  • We maintain our FY19-21F DPU but increase our DDM-based Target Price as we roll over our valuation to FY20F.
  • We expect CapitaLand Mall Trust to deliver 5-6% DPU growth in FY19-21F, driven by the acquisition of Westgate and reopening of Funan. The asset enhancement initiative (AEI) at Lot One which involves the expansion of its cinema and library portions, should also drive rental income.
  • Despite CapitaLand Mall Trust’s strong DPU growth vs. its peers, we maintain our HOLD call on the stock as we believe the market has priced in the growth. See Capitaland Mall Trust Share Price.
  • CapitaLand Mall Trust is currently trading at +1 s.d. of its 5-year dividend yield spread of 2.9%. We like the retail REIT segment for its resiliency against the macro uncertainties but remain stock selective.
  • Upside/downside risks to our call include weaker/stronger rental reversions.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | 2019-10-21
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.64 UP 2.600