CapitaLand Mall Trust remains DBS’s mall owner of choice

SINGAPORE (July 27): DBS Vickers Securities is keeping its “hold” call on CapitaLand Mall Trust (CMT) with a higher target price of S$2.23 (RM6.69), from S$2.20 previously.

CMT last Friday reported a 1.1% higher 2.74-cent distribution per unit (DPU) in 2Q, from 2.71 cents last year, which is in line with the research house’s expectations.

In a Monday report, analysts Derek Tan and Mervin Song note that the trust’s share price has done well in recent times, benefiting from increased flows from “yield-hungry investors” given expectations of extension of the current low-rate environment looks.

“Despite a tough operating environment, the REIT is still able to maintain a high occupancy at 98% and register positive y-o-y tenant sales and shopper traffic,” they observe.  

However, the analysts say they prefer buyers to be on dips considering the near-term price run.

CMT’s manager has indicated that negative reversion at the portfolio level may be seen in one quarter in the near-term, as Atrium@Orchard, Bugis+ and Westgate are still on their first rental renewal cycles.

Song and Tan highlight that this has caused rental reversions and retention rates to be under short-term pressure, as the manager navigates to position these malls.

Notably, CMT’s Funan DigitaLife Mall closed on June30 for redevelopment works, and is slated to reopen in the fourth quarter of 2019 as an “experiential interactive futuristic mall” comprising retail, office and serviced residence components.

As CMT will fund the redevelopment cost of S$560 million entirely by debt, gearing is expected to increase to 38%, which is still comfortably below the S$800 million headroom in the analysts’ view. They add that CMT’s acquisition of Bedok Mall “more than replenishes any loss of income” from Funan’s redevelopment over the next three years.

“We are excited about the manager’s visions about redeveloping Funan 2.0 into an aspirational lifestyle destination,” state the analysts, who see this as a move to capture the alpha from development gains.

Dubbing it a “proactive asset management strategy”, they are optimistic that CMT’s redevelopment plans will “inject new life to an aging mall” in addition to bringing incremental impact to net asset value (NAV).

Despite retail headwinds, DBS foresees that CMT’s malls will continue to see good demand. The research house has also declared that CMT as its “mall owner of choice” for its “accessibility, excellent asset management track record, and strong rewards/marketing programme”.  

“The trust's ability to maintain a steady growth in top line while holding occupancies will be a strong testament of the manager's capability to stand out among its peers,” conclude Song and Tan.

As at 11.51 a.m, units of CMT are trading 0.01% higher S$2.16. — theedgemarkets.com.sg

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