CapitaLand Mall Trust

Transcription

1 Singapore Company Guide Version 7 Bloomberg: CT SP Reuters: CMLT.SI Refer to important disclosures at the end of this report DBS Group Research. Equity 23 Jan 2017 BUY Last Traded Price ( 20 Jan 2017): S$1.99 (STI : 3,011.08) Price Target 12-mth: S$2.17 (10% upside) (Prev S$2.25) Potential Catalyst: Better-than-expected rental reversion Where we differ: We are in line with consensus Analyst Singapore Research Team equityresearch@dbs.com Derek TAN derektan@dbs.com Mervin SONG CFA mervinsong@dbs.com What s New 4Q16 DPU flat, full year FY16 DPU was 11.1Scts, down 1.1% y-o-y Top line performance weakened on a comparable mall basis Rental reversion slowed to 1.0% Revised TP to S$2.17 Price Relative Focus on Stability Focus for FY17 is to maintain stable DPU. (CMT) s slight negative DPU growth of 1.1% in FY16 was not a surprise. Growth engines such as tenant sales and shopper traffic continue to place downward pressure on the back of a still challenging retail environment, which resulted in slower growth in rental reversions. Without yield accretive acquisitions, the focus for FY17 is to maintain stable DPUs. Hence, we expect flattish to marginal DPU growth for the next couple of years. Funan s redevelopment plans are within our expectations. Plans for Funan 2.0 including a cycle-through mall, two Grade A office towers, and co-living apartment units, were largely in line with our scenario study published on 1 July 2016 (Rhapsody of Funan 2.0). We are supportive of CMT s decision to undertake the redevelopment. Apart from a potential 4 Scts (or 2.0%) boost to NAV, we applaud the proactive asset management strategy to turn the ageing mall into a lifestyle destination. Gearing has room to finance asset enhancement programs and other developments. As CMT will fund Funan s redevelopment cost of S$560m entirely with debt, which is comfortably below the S$800m headroom available, gearing is expected to increase to 38%, which is still healthy. Forecasts and Valuation FY Dec (S$m) 2015A 2016A 2017F 2018F Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) 2 (16) 2 0 DPU (S cts) DPU Gth (%) 4 (1) (1) 1 NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%) Distn. Inc Chng (%): (2) (1) Consensus DPU (S cts): Other Broker Recs: B: 10 S: 0 H: 12 Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P. Valuation: We revised our DCF-backed TP to S$2.17 from S$2.25 and trimmed DPU forecasts for FY17/18 by %, as we lowered our growth assumptions. The stock offers FY17F DPU yield of above 5.5% and total potential return in excess of 14% based on its last traded price of S$1.99. Key Risks to Our View: More aggressive rate hikes than consensus expectations. While the consensus is expecting three rate hikes in 2017, more aggressive policy directions may send ripples in the market. CMT being a proxy for interest-rate investment, may then suffer from selling pressure. At A Glance Issued Capital (m shrs) 3,543 Mkt. Cap (S$m/US$m) 7,033 / 4,931 Major Shareholders (%) Capitaland 29.3 Blackrock 5.0 NTUC Enterprise Co-operative 5.0 Free Float (%) m Avg. Daily Val (US$m) 13.7 ICB Industry : Real Estate / Real Estate Investment Trust ed: JS / sa: YM, PY

2 WHAT S NEW Flat 4Q16 DPU, full year FY16 DPU down 1.1% Weaker top line performance on a comparable mall basis. Gross revenue for 4Q16 was S$169.3m, a decrease of S$11.0m or 6.1% y-o-y, mainly due to Funan, as the mall ceased its operations for redevelopment from 3Q16 whereas Bedok Mall had already started to contribute from Oct 2015 thus giving 4Q16 numbers a higher base. Stripping out both Funan and Bedok Mall for the quarter, gross revenue posted a smaller decline of 1.8% y-o-y, as the improvement from IMM and Clarke Quay were inadequate to offset the decline from key assets including Tampines Mall, Junction 8, Plaza Singapura and The Atrium@Orchard. Property operating expenses of S$53.1m for the quarter was S$1.5m or 2.8% lower y-o-y mainly due to Funan. Excluding Funan and Bedok Mall, expenses crept up by 1%, and as a result, net property income (NPI) for the quarter was down by 7.6% y-o-y. Flat 4Q16 DPU due to lower finance costs and distribution from retentions. Despite the decline in top line performance, DPU was flat at 2.88Scts, mainly due to 1) lower finance costs as net proceeds from the sale of Rivervale Mall in Dec 2015 was utilised to partially repay the term loans that were drawn down to finance the acquisition of Bedok Mall, and 2) distribution of income of S$12.0m retained from 1Q16. Full year FY16 DPU dipped by 1.1%, in line with our forecast. FY16 full year DPU was 11.13Scts, down 1.1% y-o-y and represented 99.4% of our previous forecast. The S$17.1m of capital distribution received from the sale of the office strata units of Westgate Tower on 20 Oct 2016 has been retained for general corporate and working capital purposes. This brings CMT s full year payout ratio to 92.9%. Operational matrix stayed flat. Portfolio occupancy stayed flat at 98.5% q-o-q. FY16 tenant sales and shopper traffic were reported at 0.9% and 2.3% growth respectively, we estimate their respective figures in 4Q16 were between 0% to +0.5%. While weaker operational performance against a backdrop of retail headwinds was largely anticipated, the discomfort was a 0.8% drop in occupancy at Tampines Mall to 99.2%. This is the first time in two years that it has been below 100%. Tampines Mall is CMT s third largest asset by NPI and contributed 10.1% of 4Q16 NPI. The mall may be facing competition from its neighbour Tampines One and the recently opened Tampines Hub. Rental reversion continued to slow down to 1.0%. In FY16, 20.5% of the portfolio NLA was renewed, achieving an average rental reversion of 1.0%. The top contributors were IMM (+4.5%), Junction 8 (+3.7%), Tampines Mall and Bugis Junction (both +3.4%). The biggest detractors were Bugis+ (- 8.0%), Westgate (-7.2%) and Atrium@Orchard (-2.5%). The latter two assets will go through their first rental renewal cycle this year and there will be some remixing of its tenants to refine its positioning, whereas Bugis+ has yet to show signs of recovery. Short WALE of 2.0 years. Weighted Average Lease Expiry (WALE) is relatively short at 2.0 years; the portfolio has 25.6% of total gross rental income coming up for review in FY17 and 29.0% in FY18. This may place further pressure on DPU outlook given reversion has been trending down. Asset update: Demolition at Funan has been completed and the site was handed over to the main contractor in Jan Rejuvenation of Plaza Singapura and Tampines Mall was also completed in 4Q16. Capital Management: Stay Prudent. Leverage and average cost of debt remained around 35.4% and 3.2% respectively. Average term of maturity was 5.3 years. Only 6.5% of all borrowings will be due in FY17. Assets remained 100% unencumbered. OUR VIEW Revised TP to S$2.17 from S$2.25 and trimmed DPU forecasts. Maintain BUY. We have revised down our rental growth forecasts for key assets such as Westgate and The Atrium@Orchard. As a result, our TP was revised down by 3.3% to S$2.17 from S$2.25 (P/NAV from 1.21x to 1.17x). Meanwhile DPU forecasts for FY17-18 were trimmed by 1.2% to 1.7%. FY17F DPU was revised to 11.20Scts, down 1.1% from FY16, and offers a forward yield of 5.7% based on the latest closing price of S$1.99. Total return >14%. Maintain BUY. Page 2

3 Quarterly / Interim Income Statement (S$m) FY Dec 4Q2015 3Q2016 4Q2016 % chg yoy % chg qoq Gross revenue (6.1) (0.2) Property expenses (54.7) (50.2) (53.2) (2.8) 6.0 Net Property Income (7.6) (2.8) Other Operating expenses (12.1) (12.1) (12.3) Other Non Opg (Exp)/Inc N/A N/A Net Interest (Exp)/Inc (25.3) (24.2) (24.4) 3.7 (0.6) Exceptional Gain/(Loss) 72.7 (0.2) 0.13 N/A N/A Net Income (51.1) (15.2) Tax (0.6) 0.0 (1.0) 78.4 N/A Minority Interest N/A N/A Net Income after Tax (51.5) (16.1) Total Return (57.1) (3.6) Non-tax deductible Items (2.7) (0.8) (6.3) Net Inc available for Dist Ratio (%) Net Prop Inc Margin Dist. Payout Ratio Source of all data: Company, DBS Bank Page 3

4 CRITICAL DATA POINTS TO WATCH Net Property Income and Margins (%) Earnings Drivers: Mall owner of choice despite retail headwinds. CMT s portfolio of malls stands out in Singapore s retail landscape due to its (a) accessibility, (b) excellent asset management track record, and (c) strong rewards/marketing programme. Despite recent retail headwinds, we believe that CMT s malls will continue to see good demand as retailers look to consolidate their footprints within CMT s malls. Ability to deliver value through AEIs. Strategic asset enhancement initiatives (AEIs) across its properties will result in increased shopper traffic in the medium term. For instance, the completion of AEI at IMM building in November 2015 has repositioned the mall as the largest outlet mall in Singapore with wider offerings, which should help to further differentiate the mall in the midst of new supply. The upcoming redevelopment of Funan 2.0 could also offer upside potential to the Trust. Expect rental reversions to underperform historical levels. CMT s rental reversion trends have been moderating (3.7% for FY15 and 1.0% for FY16) and as retailers profitability continues to be squeezed by high labour costs and falling retail sales. We believe that rental reversions are likely to fall within the 1-2% range in the next 1-2 years, compounded by pressure from escalating labour costs and labour shortage. NPI margins could decline as the Manager expands marketing efforts. The Manager is looking to ramp up marketing efforts to attract a younger audience by deploying various digital and social media initiatives and the rollout of the enhanced CapitaStar reward programme to attract and retain shoppers. In addition, the Manager intends to step up the installation and adoption of mobile and internet-enabled infrastructure within its malls to allow complementary e-commerce activities (J Avenue website for shoppers to buy online and collect in store). While the immediate benefits are not obvious and are likely to drive up operating expenses in the medium term, we laud the efforts of the management in embracing changes in shoppers' expectations. Net Property Income and Margins (%) Distribution Paid / Net Operating CF Interest Cover (x) Source: Company, DBS Bank Page 4

5 Balance Sheet: Gearing to remain stable. CMT s gearing ratio is forecast to remain fairly stable at 35-38% over FY17-18F. This is after the placement of new units as consideration for the purchase of Bedok Mall in 3Q15 and assuming 100% debt financing for the redevelopment of Funan. Gearing level is within management's comfortable level of between 35% and 40%. Cost of debt to remain stable. The average debt cost is 3.2%, which should remain stable in the immediate term. With interest rates on the rise, we have priced in a 25 bps increase in average interest cost once hedges are rolled over in the coming two years. Aggregate Leverage (%) ROE (%) Share Price Drivers: Acquisitions to drive earnings. CMT has the right of first refusal to acquire its Sponsor s retail assets in Singapore. CapitaLand has several retail assets in its portfolio which could be injected into the REIT, including Star Vista and the remaining 70% stake in Westgate. Better-than-expected operational results. We believe that CMT s portfolio will continue to remain resilient despite headwinds. The Trust's ability to maintain a steady growth in top line while holding occupancies will be a strong testament of the Manager's capability to stand out among its peers. Distribution Yield (%) IMM could be a positive surprise. With the completion of phase two, IMM is now the largest outlet mall in Singapore, with 85 outlet stores. Feedback has been positive as the mall renewed 24.5% of the mall s NLA over FY16 at 4.5% reversion rate which is highest among all properties. Key Risks: Downside risk to rental reversions. A worse-than-expected slowdown in consumer sentiment and consumption outlook may result in lower reversionary potential (vs our 1.5% estimate) for leases expiring in FY17/18. Funan s redevelopment could be a near-term catalyst. Further upside risk is from interest savings. The Trust has been proactive in extending its debt profile, locking in long-tenure MTNs at lower rates than previously achieved. Further interest savings from refinancing associate debt would offer upside to our estimates. PB Band (x) Company Background CapitaMall Trust is a real estate investment trust which owns and invests in retail properties in the suburban areas and downtown core of Singapore. Source: Company, DBS Bank Page 5

6 Income Statement (S$m) FY Dec 2014A 2015A 2016A 2017F 2018F Gross revenue Property expenses (210) (203) (210) (210) (214) Net Property Income Other Operating expenses (46.3) (45.8) (49.0) (50.5) (51.1) Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc (99.3) (91.6) (95.0) (95.4) (96.4) Exceptional Gain/(Loss) (0.6) Net Income Tax 0.0 (0.6) (1.0) Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items (44.6) (68.3) Net Inc available for Dist Growth & Ratio Revenue Gth (%) (0.1) 0.9 N Property Inc Gth (%) (0.2) 0.5 Net Inc Gth (%) (15.2) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x) Source: Company, DBS Bank Earnings for FY17-18 are expected to be flattish Page 6

7 Quarterly / Interim Income Statement (S$m) FY Dec 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 Gross revenue Property expenses (54.7) (51.9) (54.8) (50.2) (53.2) Net Property Income Other Operating expenses (12.1) (12.1) (12.6) (12.1) (12.3) Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc (25.3) (23.4) (23.0) (24.2) (24.4) Exceptional Gain/(Loss) 72.7 (0.6) 0.06 (0.2) 0.13 Net Income Tax (0.6) (1.0) Minority Interest Net Income after Tax Total Return Non-tax deductible Items (2.7) (0.8) (6.3) Net Inc available for Dist Growth & Ratio Revenue Gth (%) 12 0 (5) (1) 0 N Property Inc Gth (%) 11 2 (9) 3 (3) Net Inc Gth (%) 78 (38) (12) 6 (16) Net Prop Inc Margin (%) Dist. Payout Ratio (%) Balance Sheet (S$m) FY Dec 2014A 2015A 2016A 2017F 2018F Investment Properties 7,510 8,366 8,509 8,685 8,861 Other LT Assets 1,194 1,357 1,301 1,301 1,301 Cash & ST Invts 1, Inventory Debtors Other Current Assets Total Assets 9,858 10,356 10,327 10,587 10,785 FY16 payout ratio was 92.9%, more income was retained to cover working capital and general expenses ST Debt Creditor Other Current Liab LT Debt 2,407 3,312 3,038 3,214 3,390 Other LT Liabilities Unit holders funds 6,282 6,693 6,692 6,715 6,733 Minority Interests Total Funds & Liabilities 9,858 10,356 10,327 10,587 10,785 Non-Cash Wkg. Capital (228) (175) (183) (246) (248) Net Cash/(Debt) (2,040) (2,708) (2,805) (2,895) (3,050) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X) Source: Company, DBS Bank Page 7

8 Cash Flow Statement (S$m) FY Dec 2014A 2015A 2016A 2017F 2018F Pre-Tax Income Dep. & Amort Tax Paid (0.5) 0.0 (3.6) (1.2) 0.0 Associates &JV Inc/(Loss) (149) (71.8) (66.9) (78.0) (79.0) Chg in Wkg.Cap Other Operating CF Net Operating CF Net Invt in Properties (64.7) (95.0) (76.0) (176) (176) Other Invts (net) Invts in Assoc. & JV 12.3 (17.6) Div from Assoc. & JVs Other Investing CF 6.47 (422) Net Investing CF 50.6 (464) 27.3 (97.9) (96.9) Distribution Paid (370) (389) (394) (390) (396) Chg in Gross Debt (85.6) New units issued Other Financing CF (105) (256) (105) Net Financing CF (160) (484) (581) (213) (218) Currency Adjustments Chg in Cash 300 (525) (220) Funan s earnings have been removed for c.3.5 years from 2H16 (expected opening in 4QFY19). After which, our new forecasts for Funan 2.0 have been incorporated in the model Operating CFPS (S cts) Free CFPS (S cts) Source: Company, DBS Bank Target Price & Ratings History Source: DBS Bank Analyst: Singapore Research Team Derek TAN Mervin SONG CFA Page 8

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