• 3Q17 DPU unchanged YoY
• Higher portfolio occupancy
• Slight 1.7% dip in rental reversions

3Q17 Results Within Our Expectations

CapitaLand Mall Trust (CMT) reported a stable set of 3Q17 results which met our expectations. Although gross revenue fell marginally by 0.2% YoY to S$169.4m, NPI rose 1.6% to S$121.4m due to lower property tax and utility expenses. This translated into a NPI margin of 71.6% (+1.2 ppt YoY). DPU was unchanged at 2.78 S cents.

On a 9M17 basis, CMT recorded gross revenue of S$510.1m, which was a decline of 2.0% and represented 74.6% of our FY17 forecast. DPU was flat at 8.26 S cents (+0.1%) and accounted for 74.7% of our full-year projection. Management had retained S$7.6m of its taxable income available for distribution in 9M17, or ~0.214 S cents per unit (9M16: S$12.0m), which is expected to be distributed to unitholders in 4Q17.

Rental Reversions Remain Negative, But More Upbeat Sentiment

CMT saw a slight negative rental reversion of 1.7% for 9M17 (1H17: -1.6%), with the main drag coming from Westgate (-10.5%), Bedok Mall (- 6.0%) and Tampines Mall (-4.3%). The negative rental reversion at Tampines Mall was attributed to a change in tenant mix for a lease from banking to F&B.

Looking ahead, CMT only has 3.1% of its gross rental income expiring in 4Q17, but a potential risk could come from the 30% of expiries due in 2018, which include 17 anchor and mini-anchor tenant leases. There is a likelihood of a change in trade mix for some of these leases as CMT seeks to reposition its malls.

Shopper traffic (+0.2%) and tenants’ sales psf per month (flat) were stable in 9M17, but overall portfolio occupancy saw a slight uptick from 98.6% (as at 30 Jun 2017) to 99.0%. Management noted a slight improvement in consumer sentiment, and this was also reflected in Singapore’s retail sales index excluding motor vehicles (+2.0% and +3.7% YoY in Jul and Aug, respectively).

Maintain BUY

We fine-tune our assumptions, which include lowering our finance cost projections due to the expected repayment of borrowings from CMT’s divestment of the serviced residence component in the Funan integrated development. Our FY17 and FY18 DPU forecasts are lifted by 0.5% and 0.4%, respectively. Maintain BUY on CMT with an unchanged fair value estimate of S$2.20.

Source: OCBC Research - 23 Oct 2017