• 4Q16 DPU flat YoY
• Positive shopper traffic and tenant sales
• Rental reversions moderated

4Q16 results within our expectations

CapitaLand Mall Trust (CMT) reported a 6.1% YoY decline in its 4Q16 gross revenue to S$169.3m, largely due to the absence of contribution from Funan and Rivervale Mall, which were closed for redevelopment and divested, respectively. DPU was flat YoY at 2.88 S cents, as management released S$12.0m of taxable income available for distribution which was retained from 1H16 but retained S$17.1m of capital distribution following the sale of the office strata units of Westgate Tower on 20 Oct 2016. Results were in-line with our expectations. For FY16, CMT’s gross revenue rose 3.1% to S$689.7m and this formed 98.8% of our fullyear forecast. DPU of 11.13 S cents represented a slight decline of 1.1% and accounted for 99.3% of our projection.

Firm occupancy, but reversions to remain under pressure

CMT showcased its resilience by recording higher shopper traffic of 2.3% in FY16, while its tenants’ sales psf per month grew 0.9% despite the lacklustre retail environment in Singapore. Occupancy at its malls was also stable at 98.5%, as at 31 Dec 2016 (-0.1 ppt QoQ). However, CMT experienced a continued moderation in its rental reversion trend, as the increase in rental rates came in at 1.0% for the full-year (1H16: 1.7%; FY15: 3.7%). Overall occupancy cost was 19.0% for FY16, versus 18.5% in FY15. However, on a comparable mall basis, the occupancy cost for FY15 would instead have been 19.2%.

We expect continued pressure on rental reversions in the foreseeable future, but expect management to continue its proactive approach in managing its lease expiries, tenant mix and operational efficiencies.

Maintain BUY

We incorporate this latest set of full-year results in our model, and make some minor adjustments to our DPU forecasts (FY17 and FY18 projections lowered by 0.5% and 0.2%, respectively). We also factor in a slightly higher cost of equity assumption of 7.3% (previously 7.2%), as we raise our risk-free rate from 2.4% to 2.7%. Rolling forward our valuations, our fair value estimate is lowered from S$2.23 to S$2.20. However, we maintain our BUY rating given potential total returns of ~16%.

Source: OCBC Research - 23 Jan 2017