SINGAPORE (Jan 2): Maybank KimEng is starting Singapore’s largest retail REIT at “hold” given muted rental growth of retail properties and Funan DigitaLife Mall to contribute only from end 2019.
Against retail headwinds and a weaker operating outlook, CapitaLand Mall Trust underperformed the S-REIT sector and the Singapore market which were up 21% and 18% in 2017 respectively.
Although trading at undemanding 1.2 times book value, Maybank says CapitaLand Mall Trust’s share price correlation with an expected improvement in retail sales has weakened and sees limited near term catalysts.
“We see a slow recovery for CapitaLand Mall Trust’s 16 properties amid an improving retail sales outlook, and have factored in conservative reversion assumptions in our model; weaker rentals should persist in the near term, with a muted recovery expected towards 2H18,” says analyst Chua Su Tye in a Tuesday report.
However, Chua believes the major assets coming on stream do not pose direct competition to the catchment area of CapitaLand Mall Trust’s malls, given its stronger CBD and western focus, at 50% and 20% of AUM, respectively.
Still, CapitaLand Mall Trust continues to lead in the area of innovation by expanding its experiential retail concepts, prioritising digital marketing efforts, adds Chua.
These are constructive against rising e-commerce competition, which are likely to impact a smaller 20-25% of CapitaLand Mall Trust’s portfolio, given its diversified tenant profile relative to the other retail REITs.
Since late 2014, units of CapitaLand Mall Trust have underperformed the market and S-REITs. Valuations are now at their 15-year historical average, but lack near-term catalysts.
“We initiate at ‘hold’ with a DDM-based $2.15 target price, and prefer retail REITs with stronger Orchard Road exposure, which could gain from an earlier recovery,” says Chua.
Units in CapitaLand Mall Trust are up 1 cent at $2.14 or 5.3% forecast DPU yield for FY18.
