EUR 850.00 For Business Accounts Only

Morningstar | CapitaLand Mall Trust’s 1Q 2019 Results Slightly Above Expectations; Funan Underpin Near-Term Growth. See Updated Analyst Note from 24 Apr 2019

We raised CapitaLand Mall Trust’s fair value estimate to SGD 2.48 per unit from SGD 2.42 on the back of stronger-than-expected contribution from Westgate following the completion of its asset enhancement initiatives and enhanced trade mix. This was also the first full quarter contribution by Westgate after the acquisition of its remainder 70% stake in November 2018. Our narrow economic moat and stable moat trend ratings remain unchanged. We think the units are undervalued at the current price, with near-term growth driven by Westgate and the redevelopment of Funan, which is expected to open in mid-2019. Long-term growth will depend on potential asset enhancement initiatives on some of the company's older assets as well as acquisition and redevelopment opportunities.

CapitaLand's first-quarter 2019 results were slightly above our expectations mainly on the higher-than-expected contribution from Westgate. Net property income increased by 11.5% year over year to SGD 140.1 million on the back of a 10% year-over-year increase on revenue to SGD 192.7 million. Distribution per unit increased by 3.6% year over year to SGD 0.0288 per unit. The trust started the year strong with a positive rental reversion of 1.2% led by IMM, Clarke Quay, and Junction 8, while negative rental reversion was only seen at Raffles City. Operationally, shopper foot traffic increased by 2% year over year, while tenant sales per square foot declined by 0.4% year over year. Average occupancy rate declined slightly to 98.8% from 99.2% at the end of 2018, mainly driven by decline in occupancy rates in IMM, Bugis Junction, and Clarke Quay.

We continue to expect near-term growth of CapitaLand Mall Trust to be supported by the acquisition of the remainder 70% stake in Westgate and the redevelopment of Funan. Funan is expected to open in mid-2019. More than 90% of the leases for its retail and office space has been signed. In the long-term, we expect the company to continue to generate value for investors from asset enhancement initiatives, actively managing tenant and trade mix, and redevelopment of its properties. Through asset enhancement initiatives, the company is able to achieve better utilization of floor space and increase net leasable area by expanding existing properties. By actively managing tenant and trade mix, the trust could constantly bring in new tenants that are in line or ahead of retail trends to make sure that shoppers would constantly be engaged with the offerings at its portfolio of malls.