• 2Q19 DPU +3.9% YoY
• Operating metrics mixed
• Higher portfolio valuation

2Q19 Results Met Our Expectations

CapitaLand Mall Trust (CMT) reported its 2Q19 results which were in-line with our expectations. Gross revenue and NPI rose 10.6% and 10.2% YoY to S$189.5m and S$133.2m, respectively. DPU grew 3.9% YoY to 2.92 S cents. However, if we take into account the S$4.6m of taxable income available for distribution (~0.13 S cents per unit) which was retained in 2Q18, we estimate that 2Q19 DPU would instead have declined slightly by 0.7% YoY.

For 1H19, CMT’s gross revenue and NPI increased 10.9% and 10.3% to S$382.3m and S$273.3m, respectively. Funan contributed maiden gross revenue of S$0.9m, but NPI was -S$2.4m due to preopening expenses. 1H19 DPU of 5.80 S cents represented growth of 3.8% and constituted 48.5% of our FY19 forecast.

Mixed Operating Performance

Rental reversion came in positive at 1.8% for 1H19, versus +1.2% in 1Q19. This implies a stronger pick-up in 2Q19 vis-à-vis 1Q19. All of CMT’s malls delivered positive rental uplifts, with the exception of Raffles City Singapore (-0.3%). Strong growth came from Lot One Shoppers Mall (+5.6%), Westgate (+4.3%) and IMM (+4.1%). Shopper traffic remained stable at +1.9% for 1H19 (1Q19: +2.0%). However, portfolio occupancy was down slightly by 0.5 ppt QoQ to 98.3%, while tenants’ sales (psf/month) slipped 0.9% in 1H19 (1Q19: -0.4%).

Higher FV of S$2.51

The cap rates adopted by the independent valuers were all unchanged, but valuation for its portfolio excluding Funan and Raffles City (40% interest) went up 1.0%, or S$93.0m, versus end-FY18. Funan’s valuation more than doubled from S$360m to S$751m as it now reflects the total land value of the retail and office components of the integrated development upon obtaining TOP in Apr 2019.

Looking ahead, rejuvenation works on Lot One Shoppers’ Mall will commence in 3Q19. This entails expanding the library footprint to include the latest digital initiatives and features to enhance community engagement, coupled with reformatting the cinema to maximise efficiency of the seating occupancy.

We leave our DPU forecasts intact but lift our fair value from S$2.33 to S$2.51 as we incorporate a lower risk-free rate (2.3% to 2.0%) and cost of equity (6.8% to 6.5%) assumptions in our model.

Source: OCBC Research - 24 Jul 2019