CapitaMall Trust - 2Q11 results in line (OCBC)

Maintain HOLD

Previous Rating: HOLD

Current Price: S$1.935

Fair Value: S$2.06

2Q11 DPU of 2.36 S-cents in line. CapitaMall Trust (CMT) reported 2Q11 distributable income of S$75.5m, or a DPU of 2.36 S-cents, which is up 3.1% versus 2Q10. Based on the last closing price of S$1.94, this represents an annualized yield of 4.9%. Results are in line with our expectations as 1H11 distributable income of S$148.7m constituted 50.6% of our FY11 forecast. Gross revenue for the quarter came in at S$159.6m, which is up 12.0% YoY on the back of Clarke Quay and Illuma's contributions and positive performance across the portfolio.

Improved performance across portfolio. 1H11 gross revenue, on a same-store basis, increased 4.2% YoY. We saw increased contributions from all malls except the Atrium which is undergoing enhancement. Same-store operating expenses in 1H11, however, increased 8.8% YoY due to higher utility and labor costs. Shopper traffic and tenant sales in 1H11 grew 3.6% and 8.0% YoY, respectively. Tenant sales also increased broadly across trade categories in 1H11. 269 leases were renewed in 1H11 with 7.8% higher rentals rates, with 242 remaining leases expiring this year. Occupancy remained healthy at 98.1% as of end 2Q11.

JCube 80% pre-committed. JCube is 80% pre-committed to date before its scheduled opening in 1Q12. The asset enhancement at Atrium@Orchard is on track to complete in 4Q12 and management guided that occupancy at the Atrium could fall further to 35%-40% in mid-2012 as enhancement progress. Junction 8 will start its enhancement works in 3Q11.

Debt due 2011 refinanced. Management issued US$645m five-year secured floating rate notes and drew down on a S$200m five-year term loan facility to refinance the existing S$964m maturing in Sep 11. This lengthened the average term to maturity to 3.0 years currently versus 2.6 years as of 1Q11 end. Current gearing is at 38.2% and cash on the balance sheet stands at S$828.6m. There would be no debt maturing until the S$783m term loan under Silver Maple which is due in Oct 12.

Maintain HOLD at fair value of $2.06. We continue to view CMT positively due to improving performance across its portfolio and smooth execution of its strategy by the management team. In our view, however, most of these positives are already priced in. We revise our FY11 distribution forecast up by 1.2% and our fair value estimate to S$2.06 versus S$2.05 previously. Maintain HOLD. We will turn buyers around S$1.86.