Tuesday, July 28, 2009

Capitamall Trust

Capitamall Trust

Summary from reports:
) Retail sales of small-ticket items picking up
) More positive data from GSS
) Easing pressure on retailers and landlords
) 2Q09 results within expectation
) Occupancy remains high, slight positive rental reversion
) DPU in line despite S$1.5m retained
) Occupancy stable at 99.7%; reversion rates flat
) New-to-market brands in Orchard could be prospective tenants.

While we believe that the worst could be over for the retail industry, we expect the recovery in consumer spending to be gradual as consumers are likely to stay cautious in light of the uncertain economic outlook. As such, we maintain our forecast of a 10% decline in rent for FY09 and a 5% decline in rent for FY10. Our RNAV estimate remains at S$1.36 per unit. We also expect mid-year revaluation of the retail malls to remain stable. After the Rights issue, its gearing level will decline to 29.1% after the repayment of borrowings and we estimate that CMT’s asset portfolio can tolerate up to an 18% decline in valuation before it reaches the upper bound of its comfortable leverage target of 30%-35%. Our fair value of CMT remains at S$1.21 and we maintain our HOLD rating.
Management’s ability to grow rents despite the challenging conditions while maintaining a high occupancy level underlines its good track record as retail property managers. We have lifted FY09 and FY10 DPU to 8.6cts and 9.1cts on higher portfolio occupancy assumption of 99% vs an earlier 95%. The stock is currently trading at 5.5-5.8% DPU yield and offers a 12% total return. Maintain Buy with TP $1.68
Maintain Underperform and DDM-based target price of S$1.30. For the rest of 2009, we expect CMT’s portfolio occupancy to be nearly full, anchored by its well-located suburban malls. However, reversions may turn negative as improvements in retail sales still lag behind. Maintain target price S$1.30, still based on DDM valuation (discount rate 9.5%).

Positive retails sales, high occupancy but lack of catalysts. Learn some new term like rental reversion. DBS focus on the DPU and debt while CIMB talk about the turnover of the shops, traffic, etc. CIMB mentions the catalyst "New-to-market brands in Orchard could be prospective tenants." seems doubtful. What is the chance of brands like Gucci appearing at your heartland mall?


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