SINGAPORE (Apr 23): RHB, Phillip Capital, UOB and Maybank are keeping their “hold" calls on CapitaLand Mall Trust (CMT) at target prices of $2.10, $2.05, $2.13 and $2.10, respectively.
On the other hand, DBS, OCBC and CIMB are maintaining their “buy” calls on CMT with respective price targets of $2.11, $2.26 and $2.25.
This comes after the REIT manager last week declared a 1Q DPU of 2.78 cents, 1.8% up from a year ago on higher revenue as well as lower property expenses and finance costs.
See: CapitaLand Mall Trust posts 1.8% rise in 1Q DPU to 2.78 cents
In a Monday report, RHB analyst Vijay Natarajan says the outlook for CMT remains soft in spite of some positives, such as its recent divestment of Sembawang Shopping Centre (SSC) and a slight uptick in rental reversion over 1Q18.
See: CapitaLand Mall Trust sells Sembawang Shopping Centre for $248 mil
This is because he sees the trust facing continued supply pressures ahead, given how recent CBRE data suggests that three quarters of the retail supply is in fringe and suburban areas, which would in turn pose more direct competition to some of the trust’s malls.
“While recent months’ retail sales data points to a slight uptick in demand, we note that the ground sentiment among retailers and retail landlords remains cautious, amidst high incoming supply and a volatile global macroeconomic environment,” observes Natarajan.
“We also see the possibility of office components being divested in near-term, which could further boost yields,” says Natarajan.
Meanwhile, Phillip Capital analyst Dehong Tan has revised his target price on the REIT upwards to $2.05 from $2.03 previously to factor in the SSC divestment and assumption of cash top-ups to DPU from FY18-FY20 in the absence of SSC’s rental income.
In spite of generally rising interest rates, he believes financing costs for FY18 should remain stable with the re-financing of expiring loans and shorter tenure debt at lower interest costs.
“Divestment proceeds from SSC could also be used to further pare down debt and for Funan’s redevelopment capex. We have assumed a $3/$6 million cash top-up from divestment proceeds to DPU for loss in income from SSC in FY18E/FY19E. Our DPU forecasts remain unchanged. Tenant sales have not picked up enough for us to foresee a more meaningful uptick in rental reversions,” explains Tan of Phillip Capital.
UOB analyst Vikrant Pandey is optimistic on CMT’s latest 1Q numbers, but recommends an entry price of $1.81.
Going forward, Pandey expects more asset enhancement initiatives (AEIs) and acquisitions for the trust.
“The retail sector is increasingly buoyed by the stronger economic fundamentals (including strong growth in tourist arrivals and retail sales), with some landlords of prime shopping malls raising their asking rents after a three-year lull and some pop-up stores converting to permanent set-ups,” notes Pandey.
Like RHB’s Natarajan, Maybank analyst Chua Su Tye continues to see a weak growth outlook for CMT and its mall properties as he believes Singapore’s retail sector is still in its early stages of e-commerce disruption.
While he sees the potential for positive reversions at the trust’s IMM asset, CMT’s lower 1Q18 tenant sales against a y-o-y decline in shopper traffic is likely to cap any upside in overall renewals to low-single-digits, in his view.
Instead, Chua prefers Frasers Centrepoint Trust, rated “buy” at a target price of $2.55, for its dominant suburban mall footprint and visible 4.2% DPU CAGR profile.
In a report last Thursday, DBS lead analyst Derek Tan says that while CMT’s headline numbers are “eye popping” with its recent divestment of SSC, the impact on its valuation is limited given that the asset only represents 1-2% of the trust’s net asset value (NAV).
He nevertheless thinks the sale is a signal to the market that CMT’s properties are conservatively valued.
“CMT’s retail assets are currently valued on cap rates ranging from 4.50% to 5.05%. This compares to prior transactions such as Jurong Point and Rivervale which were sold at 4.2% and 3.75% respectively, and Sembawang Shopping Centre now sold at 2.5-2.6%,” notes DBS’s Tan.
Separately, OCBC analyst Andy Wong opines that the deal exemplifies the trust management’s continued track record of unlocking value for its unitholders.
“We estimate that the divestment would be transacted at an attractive estimated exit yield of 2.8%-3%... Although we raise our FY18 and FY19 DPU forecasts by 0.5% and 0.3%, respectively, our fair value of $2.26 remains unchanged,” he concludes.
Assuming all proceeds from the SSC are utilised to repay bank borrowings, CIMB lead analyst Lock Mun Yee says the divestment transaction is likely to have a neutral impact on CMT’s earnings, but could lower its current gearing of 33.5% to about 31.6%.
As such, Lock has tweaked her FY18 and FY19 DPU higher by 1 and 1.2%, respectively, to adjust for the pending sale of SSC as well as factor in a slight divestment gain for the period, with re-rating catalysts to come from the earlier-than-scheduled completion of the trust’s development proeprties.
As at 12.47pm, units in CMT are trading 1% lower at $2.08 or 1.04 times FY18 book based on RHB estimates.
