Westgate acquisition could bolster CapitaLand's DPU up to 7%

Rental growth could rise 2% supported by F&B and sports brands in 2019.

CapitaLand Mall Trust’s (CMT) shares have held up well against the market despite underlying sector weakness thanks to its sizeable portfolio which includes the recently completed Westgate deal and strong sponsorship that could further support growth, according to Maybank Kim Eng (Maybank KE).

CMT’s remains the largest owner of Singapore shopping-centre floor space with a 14% market share that was further strengthened by its recent acquisition of the remaining 70% interest in Westgate, Maybank KE noted. This figure could climb to 15% by 2020 with the reopening of Funan once asset enhancement initiatives (AEI) are complete.

“Government decentralisation policies should back longer-term suburban retail demand, based on existing catchment populations and official planning parameters,” Maybank KE analyst Chua Su Tye said. “These imply a 48% increase in 1.05m dwelling units as of end March 2018 to 1.55m over the next 10 to 20 years which could potentially support CMT’s suburban properties.”

Near term, CMT’s scale has further enabled growth from experimental concepts such as NomadX at Plaza Singapura and Funan repositioning, the report added.

Also read: Physical meets digital in CapitaLand's new NomadX store

Maybank KE also highlighted how the sponsor-owned Changi Airport Jewel could remain as a possible medium-term pipeline deal as it aims for a strong opening in February 2019. CMT’s sponsor share could climb to 3.5% from its interest in Jewel.

“We remain cautious though, given soft retail sales, rising online penetration and declining tourist spending on shopping,” Chua noted.

Online retail penetration jumped 4.1% at the start of 2018 to 4.9% in September, and it is set to rise further, whilst visitor receipts fell 15% YoY in H1 which is the steepest decline since the global financial crisis.

Despite this, Chua expects larger destination malls to perform better based on stronger shopper traffic and tenant sales profiles at Mapletree Commercial Trust’s (MCT) VivoCity and Fraser’s Centrepoint Trust’s (FCT) portfolio in Q3 2018.

Maybank KE warned in its report how prolonged slowdown in economic activity could reduce demand for retail space, resulting in lower occupancy and rental rates. In addition, termination of long-term leases could contribute to weaker portfolio tenant retention rates and sharper-than-expected interest rate hikes could increase the cost of debt and negatively impact earnings.

Also read: CapitaLand Mall Trust's DPU could rise in 2019 as major projects finish

“We further expect expansion by food & beverage (F&B) and sports brands to support demand and maintain our rental-growth estimates of 0-2% for 2019 and 2020,” Chua noted.

Nonetheless, Maybank KE projects CMT’s distribution per unit (DPU) to rise by 1 to 7% after factoring in its acquisition of Westgate.