CapitaLand Mall Trust downgraded by Daiwa on view it doesn’t look cheap

Singapore street in Bugis neighborhood with CapitaLand Mall Trust building; taken August 2018.Singapore’s Bugis neighborhood with CapitaLand Mall Trust building.

Daiwa downgraded CapitaLand Mall Trust to Hold from Outperform, saying the growth outlook appears to be priced in and valuations “no longer look cheap. ” That was after the unit price jumped around 15 percent so far this year.

“We believe CMT cannot be regarded as cheap by any measure,” Daiwa said in a note Tuesday.

The trust’s yield spread of 2.6 percentage points over 10-year Singapore government securities’ yield of 2 percent is still below the 15-year average yield spread of 2.9 percentage points, Daiwa said.

In addition, CapitaLand Mall Trust’s distribution per unit (DPU) growth outlook is “now well known and probably priced in,” the investment bank said.

The trust has a “superior” DPU-growth outlook, with a 4.3 percent compound annual growth rate (CAGR) over 2019-21, compared with the sector’s weighted average DPU CAGR of 2.8 percent over the same period, the note said.

It added that its forecasts assumed the newly opened Funan mall would contribute 7 percent to net property income in 2021, consistent with management guidance. “We see limited upside (or downside) risk to this forecast,” Daiwa said.

Daiwa also pointed to limited prospects for acquisitions as Singapore’s retail assets transacting in the market so far this year have had “prohibitively low” net property income yields.

But it noted, “despite our rating downgrade, we would still recommend CMT to sustainable-yield investors looking for yield and liquidity.”

CapitaLand Mall Trust reported Tuesday its second quarter net property income rose 10.2 percent on-year to S$133.15 million after the acquisition of the 70 percent of Westgate mall it didn’t already own.

Daiwa said the earnings were in line with its forecasts.

It kept its target price at S$2.53.

The unit price was down 1.14 percent at S$2.61 at 11:51 A.M. SGT.

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