EUR 850.00 For Business Accounts Only

Morningstar | C38U Updated Forecasts and Estimates from 23 Jul 2019

We raise CapitaLand Mall Trust, or CMT’s fair value estimate to SGD 2.54 per unit from SGD 2.48 mainly driven by Funan, following its reopening on June 28, because it achieved a strong committed occupancy of 96.1%, and stronger-than-expected rental reversion from other properties in the portfolio. Our narrow economic moat and stable moat trend remains unchanged. We think the units are fairly valued at the current price, with near-term growth driven by the acquisition of the remaining 70% stake in Westgate during 2018 and the reopening of Funan following its redevelopment. Long-term growth will depend on the potential asset-enhancement initiatives, or AEI, for some of CMT’s older assets, which includes the announced AEI on Lot One, as well as the acquisition and redevelopment opportunities.

CMT’s second-quarter 2019 results were slightly above our expectations. Net property income increased by 10.2% year over year to SGD 133.2 million, on the back of a 10.6% year-over-year increase on revenue to SGD 189.5 million. Distribution per unit increased by 3.9% year over year to SGD 0.0292 per unit. Rental reversion has been strong for first-half 2019 at 1.8% led by Lot One, Westgate and IMM; while negative rental reversions were only seen at Raffles City. Operationally, shopper foot traffic increased by 1.9% year over year while tenant sales per square foot declined by 0.9% year over year. Occupancy rates declined slightly to 98.3% from 98.8% at the end of first-quarter 2019. This was driven mainly by a decline in occupancy rates in IMM, Plaza Singapura, Bedok Mall, Bugis Junction and Clarke Quay.

We continue to expect near-term growth of CMT to be supported by the acquisition of the remainder 70% stake in Westgate and the newly reopened Funan. Funan managed to achieve a high committed occupancy of 95% and 98% for its retail and office space respectively as of end of June 2019. We expect a strong contribution from its retail space as most of it is currently open while contribution from its office space could come toward the end of third-quarter 2019 because of the fit-out period. CMT has also announced an AEI on Lot One, expanding the space for the library and reconfiguring the space for the cinema, both of which are its anchor tenants in the property. This AEI is expected to cost about SGD 15-20 million and is expected to commence from third-quarter 2019 to third-quarter 2020.

In the long term, we expect CMT to continue generating value for investors from AEI, actively managing the tenant-and-trade mix, redevelopment of its properties and acquisition of properties either in Singapore or overseas. Through asset enhancement initiatives, CMT is able to achieve better utilization of floor space and increase the net leasable area by expanding existing properties. By actively managing the tenant-and-trade mix, the trust could constantly bring in new tenants that are in line or ahead of retail trends to ensure shoppers would be engaged constantly with the offerings at CMT’s malls. The trust is also actively looking for acquisition opportunities domestically and in overseas markets.