CMT – DBSV

Enjoying the fruits of its labour

• 1Q13 DPU of 2.46 Scts was 7% higher y-o-y
  
• Steady organic growth profile; strategic enhancement programs to create value
  
• HOLD, S$2.36 TP
  

Highlights

Good start to 1Q13. CapitaMall Trust (CMT)’s 1Q13 topline and net property income grew 15% and 16% y-o-y to S$178.2m and S$125.1m respectively. This was largely attributable to income contribution upon the completion of its various asset refurbishment exercises at J-cube, Atrium and Bugis over the past few quarters. Organic growth remained firm, with rental revenues from its other malls increasing by c1.4% or SS$2.3m y-o-y. Rental reversion for the quarter was 6.2%, with a high retention rate of 91.3%. Property expenses grew 13% to $53.1m due to higher operating expenses as the malls re-open but margins rise slightly to 70.2%. As such, distribution income of S$93.7m was higher by 14.3% y-o-y. CMT will distribute cS$85.3m (DPU of 2.46 Scts, +7.0% y-o-y) and will retain S$6.6m for working capital and capex requirements.

Our View

Steady organic growth profile; rental reversion stable. Leasing progress at Plaza Singapura is healthy with the space vacated at Carrefour being replaced with new tenants (Cold Storage, John Little and George). IMM mall, which remains on track to reopen as a new concept “Value-focused” mall in May’13, is gaining traction and has secured 50 outlet brands. Looking ahead, the trust will be renewing close to c20.8% of its income and we expect renewal activities to remain fairly steady.

Asset enhancement to Bugis Junction to reap an IRR of 9%. Bugis Junction is proposing an enhancement exercise at Bugis Junction which will involve recovering close to 70,000sqft of space from its anchor department store, BHG and to convert them into specialty stores. Estimated to cost S$35m, while small, is forecasted to add an incremental net property income of S$3m upon completion, translating to a return of c9.0%.

Recommendation

HOLD maintained, TP raised to S$2.36. We have tweaked our estimates to account for additional capex and our reversionary estimates for its various malls. We have forecasted S$400m of acquisitions in our FY14F estimates. TP is thus raised to S$2.36 but given limited upside to our price objective, HOLD call is maintained.