SINGAPORE (June 12): Phillip Securities Research is initiating coverage of CapitaLand Mall Trust (CMT) with a “neutral” rating and a target price of $2.01.
In a report on Monday, Phillip’s lead analyst Tan Dehong describes CMT as a “strong operator”, but warns that slowing population growth in Singapore as well as the rise of e-commerce remain structural challenges for the retail REIT.
“CMT suburban malls stand out as a very attractive asset class with their near monopolistic locations, integration into major suburban transport hubs and focus on necessity spending,” says Tan.
“Going forward though, with structural challenges such as the threat from e-commerce, slowing population growth, [and] higher dependency ratio, brick and mortar retail sales in Singapore could enter a new era with slower growth,” he adds.
In addition, CMT has also been bogged down by slow retail sales in Singapore.
Excluding motor vehicles, Singapore retail sales fell 2.6% in 2016 – the worst showing since the Global Financial Crisis in 2009.
“Following a similarly disappointing 1Q17, we think this is set to bottom and stabilise going forward in 2H17,” Tan says. “Consumer sentiment should be further boosted by a turnaround in property prices that we opine will happen in 2H17/1H18.”
The largest mall owner in Singapore, CMT reported a distribution per unit (DPU) of 2.73 cents for the first quarter ended March 31, unchanged from a year ago.
Gross revenue fell 4.3% to $172 million in 1Q17, mainly due to the absence contributions from Funan Mall, which ceased operations for redevelopment from July 1 last year.
As a result, net property income (NPI) fell 6.1% to $120.1 million.
(See: CapitaLand Mall Trust 1Q DPU comes in flat at 2.73 cents)
But Tan believes things will start looking up for CMT as consumer sentiment looks set to improve after 14 consecutive quarters of decline since the fourth quarter in 2013.
However, Tan says that from a longer term perspective, CMT mall valuations have outperformed that of general retail shop space or residential properties.
“Valuations for CMT’s retail malls grew a CAGR of 4.8-6.2% over the past 14 years since CMT’s IPO,” Tan says. “This outperforms the 3.7% CAGR for residential home prices or 1.7-2.1% CAGR for general shop space.”
“In line with its portfolio property valuations, CMT shares also gained 6.2% CAGR from IPO to present. On top of higher capital gains, investing in CMT also yields a higher average dividend of close to 5% versus the average net rental yield of close to 3% for residential properties,” he adds.
Units of CapitaLand Mall Trust closed 1 cent higher at $1.94 on Monday.
