CapitaLand Mall Trust - CGS-CIMB Research 2019-12-09: A Beneficiary Of Lower Retail Supply

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CAPITALAND MALL TRUST (SGX:C38U)

CapitaLand Mall Trust - A Beneficiary Of Lower Retail Supply

• We expect CAPITALAND MALL TRUST (SGX:C38U), Singapore’s largest listed mall landlord, to gain from lower retail supply and deliver stable income despite the weaker economic outlook.
• CapitaLand Mall Trust is poised to deliver strong DPU growth in FY20F, driven by the reopening of Funan, but we believe this has been priced in.
• Maintain HOLD.

Tapering retail supply to benefit CMT

• Retail supply will taper down from 1m-1.4m sf in 2018/19 to an average of ~500k sf/annum in the next four years. The larger malls opened (Jewel, Funan, Paya Lebar Quarter) in 2019 have been well taken-up. As the largest landlord for malls bigger than 100k sf in Singapore, CapitaLand Mall Trust is a beneficiary of the lower supply.
• The rental index in Singapore has started to bottom out with fringe area rent recovering at a faster pace when compared to the central area rent.

Strong mall management skills

• Most of CapitaLand Mall Trust’s malls have been delivering positive rental reversion. The only larger mall by income which is experiencing negative rental reversion recently was Raffles City mainly due to the renovation of the hotels – Fairmont and Swissotel located at Raffles City. We understand the renovation of the hotels has been completed while there is also some traffic spillover from Funan to Raffles City on weekends. We expect Raffles City’s performance to improve going forward.
• CapitaLand Mall Trust has shown superior ability to turn around its malls. For instance, since it acquired the remaining 70% stake of Westgate in Nov 2018, rental reversion has improved from negative to positive territory. Bedok mall which has been a weaker mall in the portfolio has also delivered positive rental reversion in the past three quarters.

AEI and potential acquisition to drive DPU growth

• The REIT is currently doing AEI in Lot One, involving the expansion of the cinema and library which will help to increase footfall. Other than this, we also believe CapitaLand Mall Trust will be looking to remix its tenants in Raffles City to improve the performance of the mall.
• While many of the REITs in Singapore have embarked on acquisitions in the past one year to tap the strong capital market, CapitaLand Mall Trust was occupied with the reopening of Funan Mall in 2019. With limited choices in Singapore, CapitaLand Mall Trust may look into other developed markets for acquisition opportunities.

Maintain HOLD

• We continue to expect CapitaLand Mall Trust to deliver strong DPU growth of ~6% in FY20F, driven by the reopening of Funan mall in Apr 2019 on top of the stable performance from its other malls. We expect CapitaLand Mall Trust, the largest listed mall landlord in Singapore, to deliver stable income despite the weaker consumer spending environment.
• We believe the strong growth has been priced in. We maintain HOLD on the stock at an unchanged DDM-based Target Price of S$2.64. Accumulate on share price weakness.
• See Capitaland Mall Trust Share Price; Capitaland Mall Trust Target Price; Capitaland Mall Trust Analyst Reports; Capitaland Mall Trust Dividend History; Capitaland Mall Trust Announcements; Capitaland Mall Trust Latest News.
• Upside risk includes accretive acquisition; Downside risk includes weaker rental reversion.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2019-12-09

SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.640 SAME 2.640