SINGAPORE (July 24): DBS Vickers is maintaining its “buy” call on CapitaLand Mall Trust (CMT) with an unchanged target price of $2.17 after its manager last Friday reported a 1H17 distribution per unit (DPU) of 5.48 cents, up 0.2% from 5.47 cents in the same period a year ago.
This comes on the back of CMT’s unit price lagging behind both the Singapore REIT (S-REIT) index and Singapore 10-year government bonds this year.
In a Monday report, analyst Derek Tan says the DPU was in line with the research house’s estimates, while noting a “handsome” revaluation gain of $218.7 million from the trust’s properties compared to six months ago as well as higher portfolio occupancy at the expense of rental reversion.
While the trust’s portfolio occupancy improved q-o-q to 98.6% from 97.7% a quarter ago, Tan notes that 13.1% of the portfolio’s net lettable area (NLA) was renewed in the first half of FY17 with a negative reversion rate of -1.6%.
“Recalling that 9.2% of the portfolio NLA was renewed in 1Q17 with a reversion rate of -2.3%, we believe the reversion rate for 2Q17 could be flat to marginally negative. The drag mainly came from Raffles City (-1.2%), Westgate (-10.0%), and Bedok Mall (-7.4%) which all have registered two consecutive quarters of negative rental reversions,” says Tan.
“On the bright side, encouraging reversion rates were seen from Bugis Junction (up 2.8%), The Atrium@Orchard (up 5.7%) and Clarke Quay (up 2.8%). We believe the most watched asset is Bedok Mall as more than 50% of the mall’s NLA was renewed in 1H17 at more than 7% lower rents. In a still challenging retail environment, management is trading off reversion rate in order to maintain sustainable merchants to stabilise DPUs,” he adds.
As such, the analyst has trimmed his DPU estimates for the REIT by 0.4-0.7% for FY17-19F to reflect a weaker-than-expected performance from certain assets – particularly Raffles City, Bedok Mall and Westgate.
Tan nevertheless remains positive that there is still room for CMT’s unit price to catch up with the broad market rally, with the view that the potential price upside is an estimated 7%.
As at 4.21pm, units of CMT are trading 2 cents higher at $2.05.
