• 2Q15 DPU up 0.7% YoY
• Softer rental reversion of 4.6%
• Downside risks to our forecasts

2Q15 results within our expectations

CapitaLand Mall Trust’s (CMT) 2Q15 results met our expectations. Gross revenue slipped 2.9% YoY to S$159.6m, due largely to a fall in income from IMM following ongoing phase 2 AEI and lower occupancy from JCube (82.3%) and Clarke Quay (85.2%). DPU rose slightly by 0.7% YoY to 2.71 S cents.

For 1H15, CMT’s gross revenue was down marginally by 0.6% to S$329.0m, forming 47.9% of our FY15 forecast. DPU rose 2.5% to 5.39 S cents and constituted 48.4% of our full-year estimate. If we include the ~0.23 S cents/unit of taxable income available for distribution which was retained in 1Q15, 1H15 DPU would have formed 50.5% of our FY15 projection.

Rental reversions have moderated

Although CMT’s shopper traffic and tenants’ sales psf grew 3.4% and 2.9% YoY in 1H15, respectively, rental reversions moderated to 4.6% (1Q15 and FY14: 6.1%), highlighting the tough leasing environment amid the soft economic outlook and competitive pressures. The main drag came from JCube, which registered negative rental reversions of 13.5% in 1H15.

CMT’s other malls achieved positive rental uplifts versus their preceding rental rates. Management updated us that it was carrying out a reconfiguration and rebranding exercise at JCube, by bringing in more affordable merchandise brands and F&B outlets (examples are Astons, Eighteen Chefs and MOS Burger). For the 57,000 sq ft of space vacated by LifeBrandz at Clarke Quay, CMT has secured Zouk to take up 31,000 sq ft (targeted opening in Jun 2016).

Maintain HOLD; challenges remain

Looking ahead, the continued repositioning of the tenancy mix at JCube, AEI works at IMM and backfilling of vacancies at Clarke Quay may exert further pressure on CMT’s occupancy rate in our view. Although we are keeping our forecasts unchanged for now, we remain cautious on downside risks to our projections. Maintain HOLD and S$2.21 fair value estimate on CMT.

Source: OCBC Research - 23 Jul 2015