CMT 1Q19 in Line, Prefer FCT

• CAPITALAND MALL TRUST (SGX:C38U)’s 1Q19 DPU of SGD2.88cts, up 3.6% y-o-y, was in line, and we have kept forecasts and DDM-based Target Price unchanged at SGD2.40 (COE: 6.6%, LTG: 1.5%).
• Management’s earlier capital recycling efforts have helped strengthen its balance sheet, whilst deepening its suburban core.
• We see a rejuvenated Funan lifting DPUs, even though retail sector fundamentals remain soft, and competitive pressures rise, with slower shopper traffic and tenant sales on the back of Jewel’s recent opening. Maintain HOLD.
• CapitaLand Mall Trust’s results reinforce our positive bias towards suburban mall assets; of the retail REITs we prefer FRASERS CENTREPOINT TRUST (SGX:J69U) (Rating: BUY; Target Price: SGD2.60; see report: Frasers Centrepoint Trust - Maybank Kim Eng 2019-04-24: On Track For Growth), given its visible growth drivers, and potential acquisition catalysts.

NPI Up 11.5% Y-o-y on Westgate Deal

• CapitaLand Mall Trust’s 1Q19 revenue rose 10.0% y-o-y/6.8% q-o-q and NPI jumped 11.5% y-o-y/12.6% y-o-y, helped by the consolidation of Westgate, which contributed 9.9% of its total revenue.
• Portfolio occupancy dipped across most assets and was overall down q-o-q from 99.2% to 98.8% (end-Mar 2019).
• Rental reversion was +1.2% y-o-y, up slightly from +0.7% for FY18, and -1.7% for FY17.
• Shopper traffic improved at +2.0% y-o-y, while tenant sales psf fell 0.4% y-o-y. There was stronger performance across its suburban malls, which saw revenue improve 3.0% y-o-y at Tampines Mall and at 5.0% y-o-y at Bedok Mall.
• Tenant sales growth was driven by its toys and hobbies segment (+36.5% y-o-y), sporting goods (+10.7%) and jewellery and watches (+5.0% y-o-y), while the weaker trade sectors were music and video (-30.5% y-o-y), home furnishings (-18.5% y-o-y), and IT and telecommunications (-12.5% y-o-y).

Funan Leasing Momentum Well-supported

• Funan is set to open in mid-2019, with pre-committed retail and office occupancies based on leases signed and in advanced negotiations at 90% (from 80% as of end-Dec 2018). We expect revenue contribution from 2H19.
• Office leasing momentum at the property has been well-supported by several government agencies (in finance and legal, and statutory boards) at 92,000 sf (according to the Business Times), or 45% of its total NLA.

Source: Maybank Kim Eng Research - 24 Apr 2019