• 4Q14 DPU increased 5.1% YoY
• 6.1% rental reversions achieved in FY14
• Valuations no longer compelling

4Q14 results within our expectations

CapitaMall Trust (CMT) reported its 4Q14 results which came in within our expectations. Gross revenue increased 2.2% YoY to S$165.2m, while DPU grew at a stronger pace of 5.1% to 2.86 S cents. This was driven by contribution from the completed phase 2 AEI at Bugis Junction, distribution of taxable income retained in 1H14 (S$11.2m) and one-off other gain distribution amounting to S$4.5m. For FY14, gross revenue came in at S$658.9m (+3.3%) and matched our forecast. With the exception of JCube, all of CMT’s assets recorded positive revenue growth in FY14. DPU grew 5.6% to 10.84 S cents and formed 98.6% of our estimate.

Improvement in shopper traffic and tenants’ sales in 4Q14

Although shopper traffic dipped 0.9% and tenants’ sales psf pm fell 1.9% in FY14, we note that this was an improvement from the 1.5% and 3.0% decline recorded in 9M14, respectively.  We estimate that this translated into positive growth of 0.9% and 1.4% in footfall and tenants’ sales psf pm in 4Q14, respectively, an encouraging sign amid ongoing industry headwinds. CMT also managed to record rental reversions of 6.1% for its portfolio in FY14. This was the fifth consecutive year in which CMT delivered positive rental uplifts of at least 6%. While management acknowledged that this figure is under pressure this year, as was the case in FY14, it will continue to enhance the positioning of its malls and make them relevant to shoppers.

Downgrade to HOLD

We switch our valuation methodology from a RNAV model to a dividend discount model (cost of equity assumption: 7.4%; terminal growth rate: 2%), which is the more commonly used valuation metric within our S-REITs coverage. Our fair value is revised marginally from S$2.20 to S$2.21. CMT was highlighted as one of OIR’s top picks in our Singapore Strategy report dated 2 Dec 2014. Since then, its share price has appreciated 13.6%. FY15F distribution yield has now been compressed to 4.9%, which is below its %. FY15F distribution yield has now been compressed to 4.9%, which is below its 10-year average 12-month forward distribution yield of 5.3%. We believe valuations are no longer compelling, and thus downgrade CMT to HOLD.

Source: OCBC Research - 26 Jan 2015