CapitaLand Mall Trust - DBS Research 2019-10-22: Double Prosperity From Funan & Westgate

CAPITALAND MALL TRUST (SGX:C38U)

CapitaLand Mall Trust - Double Prosperity From Funan & Westgate

CAPITALAND MALL TRUST (SGX:C38U)'s 3Q19 DPU grew 4.8% y-o-y to 3.06 Scts; 9M19 DPU expanded 4.1% to 8.86 Scts, in line
3Q19 revenue and NPI were both higher by c.18%.
Strong 3Q19 results led by
1. maiden contribution from Funan;
2. an additional 70% stake in Westgate.

9M19 rental reversion +1.2% but 3Q19 was -0.7%; tenant sales +1.3%; shopper traffic -1.3%.

CapitaLand Mall Trust's 9M19 DPU of 8.86 Scts (+4.1% y-o-y) was in line at 74.5% and 75.7% of consensus and our FY20F DPU estimates. See Capitaland Mall Trust Announcements; Capitaland Mall Trust Dividend History.
Revenues and NPI grew 17.9% y-o-y and 17.6% y-o-y to S$201m and S$144m respectively.
Distributable income was 9.1% y-o-y higher despite retaining a higher amount of capital distribution and tax-exempt income distribution from CapitaLand Retail China Trust (CRCT) and Westgate of S$12.9m vs S$2.6m in 3Q18.
The strong 3Q19 results were mainly supported by:
1. maiden contribution from Funan which opened in end-June19,
2. purchase of additional 70% stake in Westgate Mall in 4Q18, and
3. operational improvement from higher occupancies (98.9% vs 98% in 3Q18) mainly from Clarke Quay (95.4% vs 90.4% in 3Q18).
While CapitaLand Mall Trust recorded positive rental reversions (excluding Funan and Sembawang Shopping Centre) of 1.2% in 9M19 vs 1.8% in 1H19 and 0.6% in 9M18, we estimate that 3Q19 delivered negative rental reversion of 0.7% mainly from Clarke Quay (-14.8%), Lot One (-12.1%), Bedok Mall (-3.3%) and Plaza Singapore (-1.8%).
Shopper traffic remained robust at +1.3% while tenant sales fell 1.3% in 9M19.
Sales per square foot for top 5 trade categories in 9M19 grew 1.2% y-o-y, similar to 1H19, which implies that performance will likely remain resilient as occupancy costs remain stable.

Gearing remained relatively flat at 34.4%.
Cost of debt was steady at 3.2%.
Debts expiring in FY19 were repaid in Oct19. Hence, FY19 refinancing has completed.

The rejuvenation of Lot One Shoppers’ Mall is underway and visitors can look forward to a wider movie selection and a bigger public library.
- The cinema is being upgraded by reformatting 4 big halls into 8 smaller halls, thus, expanding its movie offerings at any one time.
- The public library will be expanded by 600sqm in terms of NLA, featuring new initiatives to innovate learning experiences in L4 and L5.

We maintain our BUY rating with Target Price of S$2.95.
(See Capitaland Mall Trust Share Price; Capitaland Mall Trust Target Price.)
We remain bullish on CapitaLand Mall Trust as we believe Westgate and Funan will continue to drive growth in FY19F / FY20F (evident in 3Q19), by c.3% CAGR (2-Yr), one of the faster growing large-cap S-REITs.
The continued efforts to rejuvenate its malls and optimise its tenant mix will continue to drive operational improvements.

Rachel TAN DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2019-10-22

SGX Stock Analyst Report BUY MAINTAIN BUY 2.950 SAME 2.950