Share Price S$2.00
Target Price S$2.14
3Q13: Tampines Mall To Undergo Upgrading
Results were in line as AEIs and rental reversions continued to support DPU growth. A new AEI was announced for Tampines Mall, while future initiatives may include acquisitions and development plans to maximise the plot ratio at Funan. Maintain HOLD and target price of S$2.14, based on DDM (RR: 6.8%, terminal:1.8%). Entry price is S$1.86.
• Results in line with expectations. CapitaMall Trust (CMT) reported 3Q13 distributable income of S$88.8m (+10% yoy, +1% qoq) and DPU of 2.56 cents (+6% yoy, +1% qoq). 9M13 DPU is in line with our expectation, accounting for 73.3% of our full-year estimate of 10.30 cents. Included in 3Q13 distribution was S$8.5m (0.25 cent) of retained distribution in 1H13, with the remaining S$3.8m to be distributed in 4Q13.
• 3Q13 revenue increased 9% yoy to S$182m while net property income increased 13% yoy to S$127m, driven by the completion of asset enhancements (AEI) at Atrium and positive reversions of 6.3% for leases renewed ytd.
• Portfolio occupancy increased 0.4ppt qoq to 99.5% due to full occupancies at Atrium@Orchard and Plaza Singapura.
• Tenant sales remained resilient in 9M13 increasing 2.8% yoy, while shopper traffic increased 4.0% yoy. Stronger sales were recorded in most trade categories, notably in the jewellery and watches, services, and shoes and bags segments, which saw double-digit growth of 12.5- 19.0%.
• 2013 refinancing was completed following the redemption of S$98.3m convertible bonds in July. Gearing dipped slightly to 34.8% while average cost of debt remained at 3.4%.
• Proposed S$36m AEI for Tampines Mall to convert the roof area into leasable space for education tenants, reconfigure retail units to enhance fashion offerings, and to rejuvenate the façade and build a covered walkway to Tampines MRT. The two-year project is targeted to start in 1Q14 and will yield an estimated 8% ROI and increase the NLA of the mall by 25,000-30,000sf.
• Phase 1 of Bugis Junction AEI was 95% pre-committed and on track to open by 4Q13, after which works will break for Christmas before recommencing in 2014 to complete by 3Q14. Westgate mall is also >75% pre-leased ahead of its opening in end-13 although leasing is noticeably slower than Bedok Mall (over 90% pre-leased) due to competition from new malls in Jurong East, such as JEM.
• Awaiting further acquisition catalysts. The most likely acquisition target is Star Vista - the recently completed (Sep 12) CapitaMalls Asia (CMA) shopping mall in Buona Vista. But management may be waiting for the completion of nearby office development, The Metropolis, and also stabilisation during the mall’s first lease cycle. Other potential acquisition targets from the sponsor could include CMA’s stake in Ion Orchard, the upcoming Bedok Mall (slated to complete in end-13) and a potential asset swap for the Westgate mall. The AEI for Funan DigitaLife Mall may also be revived to maximise the plot ratio for the development.
• Maintain HOLD and target price of S$2.14, based on the dividend discount model (required rate of return: 6.8%, terminal growth: 1.8%). Entry price is S$1.86.
Share Price Catalyst
• Acquisition of new malls, AEI and development projects
• Positive newsflow on retail rentals, consumer spending, wage increments and mall occupancy