• 2Q16 DPU grew 1.1% YoY
• Resilient footfall and tenants’ sales
• Rental reversions remain soft

2Q16 results met our expectations

CapitaLand Mall Trust (CMT) reported a 7.1% YoY increase for its 2Q16 gross revenue to S$170.9m, driven by the acquisition of Bedok Mall on 1 Oct 2015 and higher rental achieved for properties which had recently completed their AEIs, but partially offset by lower contribution from Funan DigitaLife Mall. DPU inched up 1.1% to 2.74 S cents. Results were in-line with our expectations. For 1H16, CMT’s gross revenue rose 7.3% to S$350.7m and this formed 49.1% of our FY16 forecast.

DPU of 5.47 S cents represented growth of 1.5% and accounted for 48.0% of our full-year projection. If we include the S$12.0m of taxable income available for distribution which was retained in 1H16 and expected to be paid out in 2H16, CMT’s adjusted DPU would have formed 51.0% of our FY16 forecast.

Occupancy, footfall and tenants’ sales remain firm

CMT showcased its resilience by recording an increase of 3.6% YoY for its shopper traffic in 1H16, while its tenants’ sales psf per month grew 2.3%. Occupancy at its malls was also stable at 97.9% (+0.2 ppt QoQ), as at 30 Jun 2016. However, rental reversions remained soft, coming in at 1.7% for 1H16 (1Q16: 1.4%; FY15: 3.7%).

More details on Funan redevelopment

CMT provided more updates on its Funan redevelopment project, whereby the property is expected to comprise three components: retail, office and serviced residences. The total estimated cost is S$560m, with a targeted completion date in 4Q19. Management estimates an incremental NPI per annum of S$36.6m, which translates into a projected ROI of 6.5%.

CMT intends to leverage on Funan’s location at the heart of Singapore’s Civic and Cultural District, and to bring in fresh concepts for the integrated development. We lower our FY16 and FY17 DPU forecasts by 1.6% and 4.4%, respectively, as we factor in the Funan redevelopment in our assumptions.

However, our fair value estimate increases from S$2.10 to S$2.23, as our dividend discount model also captures the income from the completed asset in FY20, coupled with a lower risk-free rate of 2.4% (previously 3.0%) applied. Maintain HOLD.

Source: OCBC Research - 25 Jul 2016