Capitamall Trust - Enhancement works gain traction (DBSVickers)

BUY S$1.94 STI : 3,096.12

Price Target : 12-Month S$ 2.05

Reason for Report : 2Q11 Results

Potential Catalyst: Higher rental reversions

DBSV vs Consensus: Factored in lower rental reversion compared to street

• 2Q DPU of 2.36cts, together with 1Q DPU will make up 48% of our FY11 estimates

• Asset enhancement works to drive revenue growth

• Maintain BUY, TP S$2.05

DPU of 2.36 Scts is inline with expectation. Distributable income increases 3.1% yoy to S$75.5m. This was achieved through a 12% rise in revenue with NPI increasing by a slightly lower 7.7 % to $106.4m, eroded by higher operating expenses. On a qoq basis, performance was relatively stable. The group recorded revaluation gain of S$85.2m on the back of better rental outlook and c10 bps cap rate compression.

More offerings ahead Operation-wise, the group renewed 352,154 sf of NLA (c8.9% of portfolio’s NLA) in 1H with leases contracted at 7.8% growth. This was supported by a 3.6% yoy higher shopper footfall and 8.0% higher retail sales. Leasing demand remained strong with JCube achieving pre-commitment of approximately 80% to date. Meanwhile occupancies at Atrium@Orchard and Illuma are likely to see further downsides as asset enhancement intensifies/begins. Construction at the Jurong Gateway is also expected to commence by end of the year.

Robust balance sheet to fund development activities. With only 19.8% or S$87.75m of the outstanding S$444m CBs being exercised, the group is expected distribute the remaining S$13.5m from the S$18m income retained earlier. Meanwhile, the group has secured a new debt facility to refinance its S$346.4m share of Raffles City CMBS at lower interest rate, hence the average debt to maturity is extended from 2.6 to 3.6 years and interest cost down by 10 bp to 3.6%. Gearing has also dipped marginally to 38.2%. The next financing exercise will only be due in Oct 2012 highlighting the trust’s strong financial position to undertake the construction of Jurong Gateway starting end of this year.

Maintain BUY, TP S$2.05. We have adjusted our FY11 and FY12 DPU by +1% to 9.8cts and 10.8cts respectively due to the lower interest cost translating to a yield of 5.1% and 5.6% respectively. At the current price, the stock offers an 11% total return.