• 3Q14 DPU rose 6.2% YoY
• 6.3% rental reversions achieved YTD
• Ongoing AEIs to drive growth ahead

3Q14 results within expectations

CapitaMall Trust (CMT) reported its 3Q14 results which were in-line with ours and the street’s expectations. Gross revenue increased 2.9% YoY to S$164.6m, underpinned largely by the completion of the AEIs at Bugis Junction in Oct 2013 and Sep 2014, coupled with higher rentals on new and renewed leases. DPU grew at a stronger 6.2% YoY to 2.72 S cents (ex-dividend on 24 Oct), partly due to a +0.3 ppt increase in its NPI margin to 69.3%. For 9M14, revenue rose 3.7% to S$493.6m, while DPU climbed 5.7% to 7.98 S cents. This constituted 74.9% and 72.6% of our FY14 forecasts, respectively. The latter is within expectations as S$11.2m, or 0.32 S cents/unit of taxable income retained in 1H14 is expected to be distributed in 4Q14.

Softness in retail scene; but portfolio still resilient

CMT recorded a 1.5% and 3.0% YoY decline in its shopper traffic and tenants’ sales psf in 9M14, respectively, in-line with the softness in Singapore’s retail sales. Nevertheless, we note that the magnitude of decline has moderated (shopper traffic and tenants’ sales psf were down 2.0% and 3.7% in 1H14, respectively). Its portfolio occupancy rate was also stable at 98.5% as at end Sep 2014, versus 98.6% as at end 1H14 and 98.5% as at end Dec 2013. CMT managed to achieve positive rental reversions of 6.3% for 9M14, despite a slight drag coming from IMM (-2.8%). We expect the situation to improve at IMM, as management plans to carry out Phase 2 of AEIs to incorporate more outlet stores. Three other malls are also undergoing AEIs at the moment.

Maintain BUY

In terms of financial position, CMT has maintained a comfortable gearing ratio of 34.1%, with an average cost of debt of 3.6%. We retain our forecasts given this inline set of results. CMT is trading at 5.7% FY14F and 6.0% FY15F distribution yield, above its 10-year average blended 12-month forward distribution yield of 5.3%. Maintain BUY, with an unchanged fair value estimate of S$2.20. This implies total potential returns of 21%.

Source: OCBC Research - 20 Oct 2014