CapitaMall Trust - Signs of decline

DPU in line, gross turnover down. 1Q09 results were in line with Street and our expectations. Total distributable income of S$62.6m excludes S$5.9m of revenue which has been retained. 1Q09 DPU of 1.97cts fell 43.4% yoy to form 24% of our forecast for FY09. The yoy decline was due to more units as a result of its rights issue. Gross revenue of S$134.5m was up 11.1% yoy on new contributions from Atrium@Orchard and the completion of asset enhancement initiatives in various malls. Qoq, gross revenue was flat due to a 3.4% qoq decline in gross turnover (all categories affected) as well as a slowdown in reversions.

Reversion rates slowing. While portfolio occupancy had remained stable at 99.5%, reversions showed the first signs of slowing. Based on 125 leases renewed in 1Q09, average rentals grew 1.3% over preceding rates (typically committed three years ago). This represents an annual growth of 0.4%, below the 6-year average annual growth of 3.2%.

Asset enhancement for JEC and Atrium still under review. Plans for the asset enhancement of Jurong Entertainment Centre and Atrium@Orchard are still under review. Subject to market conditions and regulatory approvals, work could start at the end of 2009 for JEC and end of 2010 for Atrium.

No changes to our forecasts; downside risks remain. For the rest of 2009, we expect CMT’s portfolio occupancy to stay rather stable, anchored by its well-located suburban malls. However, with leases accounting for more than 50% of its rental revenue expiring over 2009-10 (21.5% in 2009 and 36.4% in 2010) and possibly worsening unemployment and retail sales, downside risks for rents remain. Maintain Underperform and target price S$0.87, still based on DDM valuation (discount 9.7%).

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