• 3Q19 DPU +4.8% YoY
• Funan 98.7% committed
• Raise FV to S$2.73

3Q19 Results Met Our Expectations

CapitaLand Mall Trust (CMT) reported its 3Q19 results which were in-line with our expectations. Gross revenue and NPI rose 17.9% and 17.6% YoY to S$201.1m and S$144.2m, respectively. DPU grew at a healthy clip of 4.8% YoY to 3.06 S cents. If we take into account the S$1.5m and S$4.0m of taxable income available for distribution which was released in 3Q19 and 3Q18, respectively, we estimate that 3Q19 adjusted DPU would have increased at a stronger magnitude of 7.6% YoY.

For 9M19, CMT’s gross revenue and NPI increased 12.8% and 13.1% to S$583.4m and S$417.5m, respectively. DPU of 8.86 S cents represented growth of 4.1% and constituted 74.1% of our FY19 forecast. CMT still has a balance of ~S$7.7m of retained taxable income available for distribution which we believe will be released in 4Q19.

Maiden Positive NPI Contribution From Funan

Funan contributed 9M19 NPI of S$8.3m (retail and office components), versus -S$2.4m in 1H19 (due to pre-opening expenses), which implies maiden positive NPI contribution of S$10.7m in 3Q19. Committed occupancy for Funan stood at 98.7% (+2.6 ppt QoQ), while several other malls also saw an increase in occupancy rates, such that overall portfolio occupancy improved 0.6 ppt QoQ to 98.9%.

Rental reversions came in at +1.2% for 9M19, which was a moderation from 1H19 (+1.8%). Shopper traffic growth also slowed (+1.3% YoY for 9M19 versus +1.9% for 1H19), while tenants’ sales slipped 1.3% YoY for 9M19 as compared to -0.9% for 1H19. While this was in-line with the soft retail sales index in Singapore, we believe CMT’s performance has been more resilient than the overall market.

Lot One Shoppers’ Mall to Undergo a Rejuvenation Exercise

Looking ahead, management has embarked on rejuvenation works at Lot One Shoppers’ Mall. This entails expanding the library and also the cinema’s movie selection and reformatting the current four halls to eight new halls. This AEI is expected to complete progressively from 2H20.

We lower our cost of equity assumption to 6.1% from 6.5% to better align with our assumptions used for Mapletree Commercial Trust and Frasers Centrepoint Trust (both 6.2%), coupled with expected continued resiliency in CMT’s operations and robust DPU growth projected in FY20. Correspondingly, our fair value is bumped up from S$2.51 to S$2.73.

Source: OCBC Research - 22 Oct 2019