capital mall trust

7
Promising start to FY13 CapitaMall Trust (CMT) turned in a strong set of 1Q13 results last Friday. As we have previously expected, NPI and distributable income grew by 15.5% and 14.3% YoY to S$125.1m and S$93.7m, respectively, on the back of incremental income from JCube, Bugis+ and The Atrium@Orchard following the completion of their asset enhancement initiatives (AEIs). DPU came in at 2.46 S cents, representing an increase of 7.0% YoY despite a retention of S$8.4m in income for the quarter. This is slightly ahead of our expectations, as S$6.6m or ~0.19 S cents in taxable income may be distributed in FY13 (1Q DPU already formed 25.2% of our FY13F DPU). Steady operational performance Operationally, we note that CMT continued to deliver on various fronts. Notwithstanding a slight dip in occupancy at IMM Building due to ongoing AEI, portfolio occupancy inched up 0.1ppt QoQ to 98.3% amid stronger take-up rates at The Atrium@Orchard. Steady positive rental reversion of 6.2% was also achieved during the quarter, consistent with our view for a 6.0-6.5% increase. In addition, 1Q shopper traffic improved 4.3%, while tenant sales climbed 2.4% YoY. Maintain BUY with higher fair value CMT updated that the repositioning of IMM Building has been gaining traction, as evidenced by the commitment of another 10 outlet brands in 1Q (total: 50 outlets). We also understand that the space vacated by Carrefour in 4Q12 at Plaza Singapore has been leased to Cold Storage (operational on 18 Mar) and John Little and British retailer George (open in Jul), much to our delight. ~S$8.7m in capex is estimated for reconfiguration of the space and AEI, with target ROI to come in at 9.8%. As previously guided, CMT announced a new AEI at Bugis Junction, which is expected to last from 2Q13 to 3Q14 (S$35.0m capex, 9.0% ROI). We remain positive on CMT’s performance going forward, in view of these positive developments. We are raising our fair value from S$2.32 to S$2.43 after factoring the better-than-expected results and new initiatives. Maintain BUY. RESULTS FROM AEIS NOW APPARENT AEIs come to fruition Progress on various fronts New initiatives to sustain growth 22 Apr 2013 Company Update CAPITAMALL TRUST | BUY Asia Pacific Equity Research Singapore | REITs BUY (maintain) Fair value S$2.43 add: 12m dividend forecast S$0.10 versus: Current price S$2.26 12m total return forecast 12% Analysts Kevin Tan (Lead) ● +65 6531 9810 [email protected] Sarah Ong ● +65 6531 9678 [email protected] Key information Market cap. (m) S$7,813 / USD6,324 Avg daily turnover (m) S$16 / USD13 Avg daily vol. (m) 7.8 52-wk range (S$) 1.745 - 2.32 Free float (%) 59.2 Shares o/s. (m) 3,457.1 Exchange SGX BBRG ticker CT SP Reuters ticker CMLT.SI ISIN code C38U GICS Sector Financials GICS Industry REITs Top shareholder CapitaLand - 27.6% Relative total return 1m 3m 12m Company (%) 8 5 28 STI-adjusted (%) 7 2 15 Price performance chart 1.46 1.67 1.89 2.11 2.33 2.55 Apr -12 Jul -12 Oct-12 Jan-13 2300 2680 3060 3440 3820 4200 Fair Value CT SP FSSTI Shar e Pr i ce (S$ ) Index Level ` Sources: Bloomberg, OIR estimates Industry-relative metrics 0th 25th 50th 75th 100th PB PE ROE Beta Mkt Cap Company Industr y Aver age Percentile Note: Industry universe defined as companies under identical GICS classification listed on the same exchange. Sources: Bloomberg, OIR estimates Key financial highlights Year Ended 31 Dec (S$ m) FY11 FY12 FY13F FY14F Gross revenue 630.6 661.6 709.6 783.5 Total property expenses -212.3 -216.3 -227.5 -249.9 Net property income 418.2 445.3 482.1 533.6 Amount available for distribution 301.6 316.9 339.3 388.0 DPU per share (S cents) 9.4 9.5 9.8 11.2 Cons. DPU (S cents) na na 10.2 10.9 DPU yield (%) 4.1 4.2 4.3 5.0 P/NAV (x) 1.4 1.4 1.4 1.4 ROE (%) 7.5 9.8 6.0 6.9 Debt/Assets (%) 37.3 36.1 36.4 36.6 Please refer to important disclosures at the back of this document. MICA (P) 035/06/2012 MARKET CAP: USD 6.3B AVG DAILY TURNOVER: USD 13M

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Capital Mall Trust

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Page 1: Capital Mall Trust

Promising start to FY13

CapitaMall Trust (CMT) turned in a strong set of 1Q13 results last

Friday. As we have previously expected, NPI and distributable income

grew by 15.5% and 14.3% YoY to S$125.1m and S$93.7m,

respectively, on the back of incremental income from JCube, Bugis+

and The Atrium@Orchard following the completion of their asset

enhancement initiatives (AEIs). DPU came in at 2.46 S cents,

representing an increase of 7.0% YoY despite a retention of S$8.4m in

income for the quarter. This is slightly ahead of our expectations, as

S$6.6m or ~0.19 S cents in taxable income may be distributed in

FY13 (1Q DPU already formed 25.2% of our FY13F DPU).

Steady operational performance

Operationally, we note that CMT continued to deliver on various

fronts. Notwithstanding a slight dip in occupancy at IMM Building due

to ongoing AEI, portfolio occupancy inched up 0.1ppt QoQ to 98.3%

amid stronger take-up rates at The Atrium@Orchard. Steady positive

rental reversion of 6.2% was also achieved during the quarter,

consistent with our view for a 6.0-6.5% increase. In addition, 1Q

shopper traffic improved 4.3%, while tenant sales climbed 2.4% YoY.

Maintain BUY with higher fair value

CMT updated that the repositioning of IMM Building has been gaining

traction, as evidenced by the commitment of another 10 outlet brands

in 1Q (total: 50 outlets). We also understand that the space vacated

by Carrefour in 4Q12 at Plaza Singapore has been leased to Cold

Storage (operational on 18 Mar) and John Little and British retailer

George (open in Jul), much to our delight. ~S$8.7m in capex is

estimated for reconfiguration of the space and AEI, with target ROI to

come in at 9.8%. As previously guided, CMT announced a new AEI at

Bugis Junction, which is expected to last from 2Q13 to 3Q14

(S$35.0m capex, 9.0% ROI). We remain positive on CMT’s

performance going forward, in view of these positive developments.

We are raising our fair value from S$2.32 to S$2.43 after factoring

the better-than-expected results and new initiatives. Maintain BUY.

RESULTS FROM AEIS NOW APPARENT • AEIs come to fruition

• Progress on various fronts

• New initiatives to sustain growth

22 Apr 2013 Company Update

CAPITAMALL TRUST | BUY

Asia Pacific Equity Research

Singapore | REITs

BUY (maintain) Fair value S$2.43

add: 12m dividend forecast S$0.10

versus: Current price S$2.26

12m total return forecast 12%

Analysts

Kevin Tan (Lead) ● +65 6531 9810

[email protected]

Sarah Ong ● +65 6531 9678

[email protected]

Key information

Market cap. (m) S$7,813 /

USD6,324

Avg daily turnover (m) S$16 /

USD13

Avg daily vol. (m) 7.8

52-wk range (S$) 1.745 - 2.32

Free float (%) 59.2

Shares o/s. (m) 3,457.1

Exchange SGX

BBRG ticker CT SP

Reuters ticker CMLT.SI

ISIN code C38U

GICS Sector Financials

GICS Industry REITs

Top shareholder CapitaLand -

27.6%

Relative total return 1m 3m 12m

Company (%) 8 5 28

STI-adjusted (%) 7 2 15

Price performance chart

1.46

1.67

1.89

2.11

2.33

2.55

Apr -12 Jul -12 Oct-12 Jan-13

2300

2680

3060

3440

3820

4200

Fair Value CT SP FSSTI

Shar e Pr i ce (S$) Index Level

`

Sources: Bloomberg, OIR estimates

Industry-relative metrics

0th 25th 50th 75th 100th

PB

PE

ROE

Beta

M kt Cap

Company Indust r y Aver age

Per cent i l e

Note: Industry universe defined as companies under identical GICS classification

listed on the same exchange. Sources: Bloomberg, OIR estimates

Key financial highlights

Year Ended 31 Dec (S$ m) FY11 FY12 FY13F FY14F

Gross revenue 630.6 661.6 709.6 783.5

Total property expenses -212.3 -216.3 -227.5 -249.9

Net property income 418.2 445.3 482.1 533.6

Amount available for distribution 301.6 316.9 339.3 388.0

DPU per share (S cents) 9.4 9.5 9.8 11.2

Cons. DPU (S cents) na na 10.2 10.9

DPU yield (%) 4.1 4.2 4.3 5.0

P/NAV (x) 1.4 1.4 1.4 1.4

ROE (%) 7.5 9.8 6.0 6.9

Debt/Assets (%) 37.3 36.1 36.4 36.6

Please refer to important disclosures at the back of this document. MICA (P) 035/06/2012

MARKET CAP: USD 6.3B AVG DAILY TURNOVER: USD 13M

Page 2: Capital Mall Trust

OCBC Investment Research

Singapore Equities

2

Exhibit 1: Financial performance at CMT's properties

Source: Company

Exhibit 2: Debt maturity profile

Source: Company

Page 3: Capital Mall Trust

OCBC Investment Research

Singapore Equities

3

Exhibit 3: Rental rate increases at CMT's properties

Source: Company

Exhibit 4: Lease expiry profile

Source: Company

Page 4: Capital Mall Trust

OCBC Investment Research

Singapore Equities

4

Exhibit 5: Value creation from Bugis Junction AEI

Source: Company

Exhibit 6: Value creation from Plaza Singapura AEI

Source: Company

Page 5: Capital Mall Trust

OCBC Investment Research

Singapore Equities

5

Exhibit 7: Quarterly financial highlights

1Q12 1Q13 % Chg 4Q12 % Chg

(S$m) (S$m) (YoY) (S$m) (QoQ)

Gross revenue 155.2 178.2 14.8% 173.7 2.6%

Property operating expenses -46.9 -53.1 13.2% -60.8 -12.6%

Net property income 108.3 125.1 15.5% 112.9 10.8%

Management fees -10.3 -10.9 5.4% -11.1 -1.5%

Trust expenses -1.3 -1.2 -3.4% -1.1 9.0%

Foreign exchange gain - realised 0.0 0.0 nm 0.0 nm

Finance income 0.9 3.4 281.1% 2.1 58.0%

Finance costs -31.7 -30.7 -3.2% -34.2 -10.3%

Share of profit of associate 7.6 10.4 35.8% 2.5 317.3%

Net income 73.6 96.1 30.6% 71.2 35.0%

Loss on repurchase of convertible bonds 0.0 0.0 nm -5.1 -100.0%

Net change in fair value of financial derivatives 0.1 1.4 1828.4% 1.5 -7.0%

Change in fair value of investment properties 0.0 0.0 nm 69.0 -100.0%

Gain on divestment of investment property 0.0 0.0 nm 0.0 nm

Total return for the year before income tax expense 73.6 97.5 32.4% 136.6 -28.6%

Income tax expense 0.0 0.0 -100.0% 0.0 -100.0%

Total return for the year after income tax expense 73.6 97.5 32.4% 136.6 -28.6%

Non-tax deductible expenses, net and other adjustments 8.4 -3.8 nm 16.1 nm

Change in fair value of investment properties 0.0 0.0 nm -69.0 -100.0%

Income available for distribution 82.0 93.7 14.3% 83.8 11.9%

Less: Non-controlling interests 0.0 0.0 nm 0.0 nm

Less: Other adjustments -5.4 -8.4 55.6% -4.0 113.6%

Total amount available for distribution 76.6 85.3 11.3% 79.8 6.9%

Distributions per unit (S cents) 2.3 2.5 7.0% 2.4 4.2%

Sources: Company financials

Exhibit 8: Valuation methodology

RNAV valuation S$ '000

Valuation of investment properties 10,888,305

Book value of investment properties 8,191,800

Surplus from investment properties

attributable to unitholders 2,696,505

Book value 5,702,926

RNAV 8,399,431

Number of units outstanding ('000) 3,458,921

RNAV per share (S$) 2.43

Discount to RNAV 0.0%

Fair value (S$) 2.43

Current price (S$) 2.26

Potential upside (%) 7.5%

DPU yield (%) 4.3%

Total expected return (%) 11.9%

Source: OIR estimates

Page 6: Capital Mall Trust

OCBC Investment Research Singapore Equities

Company financial highlights

Company financial highlights

Income statement

Year Ended 31 Dec (S$ m) FY11 FY12 FY13F FY14F

Gross revenue 630.6 661.6 709.6 783.5

Total property expenses -212.3 -216.3 -227.5 -249.9

Net property income 418.2 445.3 482.1 533.6

Net finance costs -132.6 -132.4 -134.4 -136.9

Property management fees -39.4 -43.4 -44.6 -46.1

Other expenses 22.2 15.4 21.3 23.5

Net income 268.5 284.9 324.4 374.2

Total return for the period 384.2 536.3 344.3 394.5

Adjustments -82.7 -219.4 -5.0 -6.5

Amount available for distribution 301.6 316.9 339.3 388.0

Balance sheet

As at 31 Dec (S$ m) FY11 FY12 FY13F FY14F

Investment properties 7,849.2 8,191.8 8,251.9 8,529.7

Properties under development 306.6 336.0 402.2 224.6

Cash 757.6 1,118.3 1,079.7 1,131.4

Total current assets 787.6 1,131.3 1,094.1 1,147.4

Total assets 9,172.2 9,888.7 9,977.9 10,131.5

Current liabilities ex debt 256.3 289.2 283.9 313.5

Debt 3,423.9 3,567.3 3,627.1 3,710.9

Total liabilities 3,926.2 4,185.8 4,247.2 4,371.0

Unitholders' funds 5,246.0 5,702.9 5,730.7 5,760.5

Total equity and liabilities 9,172.2 9,888.7 9,977.9 10,131.5

Cash flow statement

Year Ended 31 Dec (S$ m) FY11 FY12 FY13F FY14F

Net income 268.5 284.9 324.4 374.2

Adjustments 112.9 119.0 114.4 114.3

Operating income before working cap chgs 381.4 403.9 438.9 488.5

Change in working capital 2.0 61.3 2.6 41.3

Cash generated from operating activities 383.4 465.1 441.5 529.8

Cashflow from investing activities -718.3 -124.9 -91.0 -62.8

Cashflow from financing activities 379.6 20.4 -389.1 -415.2

Change in cash 44.7 360.6 -38.6 51.8

Cash at beginning of period 713.0 757.6 1,118.3 1,079.7

Cash at end of period 757.6 1,118.3 1,079.7 1,131.4

Key rates & ratios FY11 FY12 FY13F FY14F

DPU per share (S cents) 9.4 9.5 9.8 11.2

NAV per share (S cents) 157.6 165.0 165.7 166.4

P/E (x) 20.2 15.0 24.0 21.0

P/NAV (x) 1.4 1.4 1.4 1.4

NPI margin (%) 66.3 67.3 67.9 68.1

Net income margin (%) 42.6 43.1 45.7 47.8

Debt/Assets (%) 37.3 36.1 36.4 36.6

DPU yield (%) 4.1 4.2 4.3 5.0

ROE (%) 7.5 9.8 6.0 6.9

ROA (%) 4.4 5.6 3.5 3.9

Sources: Company, OIR forecasts

Page 7: Capital Mall Trust

Important disclosures

OCBC Investment Research Singapore Equities

SHAREHOLDING DECLARATION: The analyst/analysts who wrote this report holds/hold NIL shares in the above security. DISCLAIMER FOR RESEARCH REPORT This report is solely for information and general circulation only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our written consent. This report should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities mentioned herein. Whilst we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness, and you should not act on it without first independently verifying its contents. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. You may wish to seek advice from a financial adviser regarding the suitability of the securities mentioned herein, taking into consideration your investment objectives, financial situation or particular needs, before making a commitment to invest in the securities. OCBC Investment Research Pte Ltd, OCBC Securities Pte Ltd and their respective connected and associated corporations together with their respective directors and officers may have or take positions in the securities mentioned in this report and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally. Privileged / confidential information may be contained in this document. If you are not the addressee indicated in this document (or responsible for delivery of this message to such person), you may not copy or deliver this message to anyone. Opinions, conclusions and other information in this document that do not relate to the official business of OCBC Investment Research Pte Ltd, OCBC Securities Pte Ltd and their respective connected and associated corporations shall not be understood as neither given nor endorsed. RATINGS AND RECOMMENDATIONS: - OCBC Investment Research’s (OIR) technical comments and recommendations are short-term and trading oriented. - OIR’s fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon. - As a guide, OIR’s BUY rating indicates a total return in excess of 10% given the current price; a HOLD trading indicates total returns within +/-10% range; a SELL rating indicates total returns less than -10%. - For companies with less than S$150m market capitalization, OIR’s BUY rating indicates a total return in excess of 30%; a HOLD trading indicates total returns within a +/-30% range; a SELL rating indicates total returns less than -30%. Co.Reg.no.: 198301152E

Carmen Lee Head of Research

For OCBC Investment Research Pte Ltd

Published by OCBC Investment Research Pte Ltd