Share price: SGD1.88
Target price: SGD2.05 (from SGD2.10)
Fairly Valued; Uninspiring Catalysts
Fairly valued. We maintain our HOLD call on CapitaMall Trust (CMT) on valuation grounds and uninspiring DPU growth prospects as most of the eligible malls in its portfolio have already undergone asset enhancements (little boost to our DDM-derived TP). The known drivers now include (1) Bugis Junction, which will complete its SGD35m AEI (with incremental SGD3.1m NPI pa) by 3Q14, (2) Tampines Mall, with its SGD36m AEI (with incremental SGD2.9m NPI pa) to complete by 4Q15, and (3) active leasing of Westgate and Westgate Tower (30% stake) in 4Q13 and 4Q14, respectively. The two AEIs are relatively small and the increment in capital value (net of capex) is projected to be SGD22.1m and SGD16.4m, respectively, adding ~3 SGD cts to our RNAV. We forecast an unexciting 2.6% DPU CAGR in 2013-2016.
All eyes on Westgate. CapitaLand announced in August that it will retain its corporate headquarters at Capital Tower in the CBD, reversing its intention a year ago to move to Westgate Tower. It was originally slated to occupy half of Westgate Tower. This means all 320k sq ft NLA in the tower is now available for lease by end-2014. Next door, all 314k sq ft of office space in Jem development, slated to complete end of this year, has been fully taken up. The key tenants are MND, BCA and AVA. Westgate will face competition in its next rent review cycle in 2016-2017 when Sim Lian’s mixed development project in nearby Venture Avenue (minimum 90% office component; ~500k sq ft office space) comes on-stream. We forecast average passing rents of SGD16.50 psf pm for Westgate retail and SGD7.50 psf pm for Westgate Tower.
Acquisitions unlikely in the near term. CMT’s gearing is at a comfortable 34.8%. While management is open to acquisitions, we do not think any acquisition from its sponsor is likely to happen soon. This is because CMA’s most stable asset, ION Orchard, remains a major contributor to recurrent income while the other properties (The Star Vista, Bedok Mall and 50% stake in Westgate) have yet to stabilise or are still under construction.
Other catalysts. The redevelopment of Funan DigitaLife Mall (additional GFA of 315,561 sq ft already approved for office use) remains a possibility, but we believe the preference would be to change it to retail use, either in whole or in part. There is also market talk of CapitaLand selling strata offices in Westgate Tower on a whole floor basis. It Funan’s AEI plans and Westgate Tower strata office sales materialise, they will serve as positive catalysts for the stock. Until then, we are keeping our HOLD call and TP of SGD2.05.
Publish date: 06/12/13