CapitaLand Mall Trust - Retail landlord of choice


Portfolio resilience priced in. Maintain BUY
We have a BUY recommendation on the stock, with TP of S$2.05. We believe that expectations of weak reversions given retail headwinds have already been priced into the stock. In addition, the Trust’s earnings will be further bolstered by the recent acquisition of Bedok Mall, which we estimate will be 1-2% DPU accretive for FY16-17F.

Reversions to fall to 4-5% over the next few years
As retailers’ profitability continue to be squeezed by high labour costs and middling retail sales, we believe that rental reversions are likely to fall within the 4-5% range in the next 1-2 years. That said, we do not believe that there is a risk of negative portfolio reversions due to the resilience of CMT’s malls, which boast good accessibility, strong management track record, and proactive customer retention efforts (through the CapitaStar rewards programme).

Gearing to remain stable; upside from potential developments and acquisitions
CMT’s gearing ratio is forecasted to remain fairly stable at c.35% over FY15-17F which is in line with management's comfortable range of <40%. Given its sizeable portfolio, we believe that returns can be enhanced if the group undertakes more AEIs or brownfield developments to boost returns in the medium term.

Technical Analysis
Daily Chart
Valuation:
We have a DCF-backed TP of S$2.05, adjusted due to a slight tweak in earnings. At current price, the stock offers investors a DPU yield of 6.0% for FY16, and offers a total return of 15%. We maintain our BUY call.

Key Risks to Our View:
Upside risk from further 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. (Read Report)

Source : DBS Group Research

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