Is CapitaLand Mall Trust seeing a gradual recovery?

Singapore two-dollar bills

CapitaLand Mall Trust reported slightly better-than-expected first-quarter earnings, with “encouraging” signs from portfolio rental reversions, Daiwa said in a note on Friday.

“The return of the portfolio rental reversion to positive (up 0.8 percent) in the first quarter of 2018 after languishing in negative territory for all of 2017 represents a small moral victory and possibly a positive turning point, in our opinion, if it can be sustained in subsequent quarters,” Daiwa said.

It noted that CMT’s first-quarter revenue and net property income beat its forecasts by 2.6 percent and 4.2 percent respectively, driven by all properties.

“Some of the more problematic assets in 2017 (Westgate, Bedok Mall, and ‘other assets’, including JCube) appear to be improving (i.e., with less negative rental reversions in the first quarter of 2018),” it said. But it noted that shopper traffic fell 2.1 percent on-year and tenant sales per square foot were down 0.2 percent on-year, while the portfolio occupancy rate for the quarter fell to 98.9 percent from 99.2 percent in the fourth quarter of last year.

Daiwa raised its 2019-20 distribution per unit (DPU) forecasts by 2 percent after the results, and to incorporate the sale of Sembawang Shopping Centre for S$248 million. It nudged its target price up to S$2.28 from S$2.25.

“We believe the divestment provides CMT with even more financial flexibility, including the ability to support higher short-term distribution
payouts,” it said.

It also kept an Outperform call on the unit, pointing to the possible further improvements in rental reversions in quarters ahead as a positive catalyst as the market isn’t expecting a retail recovery.

“Our preference for retail REITs, including CMT, as our top picks in the S-REIT space is probably still non-consensus,” it said.

The unit ended Monday at S$2.10.