CMT – Daiwa

Time to show off leasing prowess

Dominant, but DPU-growth challenged

• We maintain our 3 (Hold) rating for CapitaMall, which looks fully-valued (in our opinion) for a dominant market leader that faces low single-digit-percentage DPU growth (based on our revised DPU estimates) for FY10 and FY11, and already trades at a premium to its December 2009 NAV of S$1.56.

Clarke Quay acquisition could provide some boost

• We estimate that the acquisition of Clarke Quay (announced on 9 February) from its sponsor, CapitaMalls Asia (CMA SP, S$2.29, 5), would be marginally DPU accretive by about 2%, and any contribution to DPU growth for FY10-11 would help to overcome the sluggish performance of the existing portfolio, where we expect modest rental reversions and subdued contributions from asset-enhancement activities. We expect a big pick-up in DPU growth only in FY12, when the Jurong Entertainment Centre redevelopment comes on stream.

As good a time as any to show off its leasing skills

• One big difference between retail and office leasing is the ability to re-invent space for a brand new or totally different retail concept, and if successful, set higher market-rent benchmarks. We have assumed average overall rental increases (relative to preceding rents) for its lease renewals of 2.5% for FY10 and 3.1% for FY11, but we think it would be an opportune time for the manger to show off what we see as its industry-leading leasing capabilities and surpass our relatively low expectations for rental reversions. Since listing, CapitaMall has achieved average rental increases (over preceding rents) of 7.3-12.6% for FY03-08.