SINGAPORE (Jan 25): CapitaLand Mall Trust (CMT) on Wednesday announced that its 4Q17 DPU increased by 0.7% y-o-y to 2.90 cents, bringing its FY17 DPU to 11.16 cents, 0.3% higher than 11.13 cents recorded in 11.13 cents.
Gross revenue came in at $172.3 million, 1.8% higher than $168.3 million a year ago, while NPI rose 2.6% to $119.3 million from $116.2 million last year.
See: CapitaLand Mall Trust declares 4Q DPU of 2.90 cents
Following this announcement, CIMB is upgrading its call on CMT to “add” from “hold” previously with an increased target price of $2.25.
In FY17, the trust renewed 21% of its portfolio NLA at a negative reversion rate of 1.7% flat compared to the last quarter.
Performance was however dragged by tenant remixing at Tampines Mall, Westgate and Bedok Mall. Excluding the latter two malls, rental reversion would have been at +0.2%.
CMT has 28.1% and 30.7% of gross rental income expiring in FY18 and FY19 respectively. Lot One and Bukit Panjang Plaza are few of the trust’s mall with a higher proportion of renewals.
The trust’s management says that it may undergo selective asset enhancements at these properties to right-position them.
In a Thursday report, analyst Lock Mun Yee says, “While this could result in some shortterm income volatility, we believe this will likely strengthen these malls for the future”
CMT’s gearing stands at 34.2% for 4Q17, a slight decline from 34.7% in the previous quarter.
“In addition to having funding capacity for the Funan redevelopment, we believe the trust can also look for inorganic growth opportunities,” says Lock.
Meanwhile, OCBC is maintaining its “buy” call on CMT with a higher fair value estimate of $2.26, as the trust’s 4Q17 results were within the research house’s expectations.
Furthermore, CMT’s redevelopment of Funan is gaining good traction amid a slight slip in shopper traffic, flat tenant sales and lower rental reversions.
In a Thursday report, analyst Andy Wong Tech Ching says that the trust is on track to meet or even exceed its 6.5% ROI target.
Encouragingly, CMT's management also pointed out that it has seen an improvement in discretionary spending at its malls.
The trust’s portfolio occupancy also remains high at 99.2%.
On the other hand, RHB is maintaining its “neutral” call on CMT with a target price of $2.10.
The trust’s negative rental reversion for FY17 was spread across six of its malls, compared to five in 9M17.
In a Thursday report, analyst Vijay Natarajan says this indicates that the market conditions across Singapore are changing.
“While retail sales data in the recent months point to a slight uptick in demand, we expect the high incoming supply of retail space to keep pressuring rental rates,” adds Natarajan.
Based on CBRE data, about 2.5 million sqf of retail space supply is expected to come on-stream over the next three years, translating to about 0.83 million sqf pa of supply.
Since around three quarters of the retail supply is in the fringe and suburban area, this poses more direct competition to some of CMT’s suburban malls.
The trust’s redevelopment of Funan Mall is progressing well and its management thinks that there is a possibility of the mall opening ahead of schedule in 3Q19, instead of 4Q19.
Already, about 40% of the retail space in Funan has been committed and the trust expects to secure leases for 70% of the mall by end-2018.
“We also see the possibility of the divestment of its office component in the near term – which could further enhance the yields,” says Natarajan.
Similarly, Maybank Kim Eng is maintaining its “hold” rating on CMT with a target price of $2.20.
In a Thursday report, analyst Chua Su Tye says, “Looking ahead, we believe investor concerns will centre on negative rental reversions and surging supply in 2018.”
According to the analyst, CMT’s 16 properties will see a slow recovery despite improving retail sales, while weaker rentals are likely to persist in the near term, with a muted recovery towards 2h18.
“Against structural challenges brought on by e-commerce disruption, we expect CMT to lead by expanding its experiential retail concepts and prioritising digital marketing efforts,” says Chua.
The analyst expects e-commerce competition could impact a smaller 20-25% of the trust’s portfolio.
As at 11.02am, units in CMT are trading 2 cents higher at $2.10 or 1.06 times FY18 book with a dividend yield of 5.33%.
