CapitaMalls Malaysia Trust - Healthy rental reversion of 6.5% BUY

We reaffirm our BUY recommendation on CapitaMalls Malaysia Trust (CMMT), with an unchanged fair value of RM2.15/unit, derived from our DCF-based valuation.
- CMMT recorded distribution income of RM40mil (+4% QoQ, +6% YoY) in 3QFY13, bringing 9MFY13 to RM117mil (+4% YoY). This came in line with our and consensus’ estimates of 75% and 74% respectively.
- The results were driven by positive rental reversion of 6.5%, mainly contributed by Gurney Plaza (+7.9%), The Mines (+10.3%) and East Coast Mall (+18.9%), offsetting the slide in rental reversion for Sungei Wang Plaza (-3%) as shopper traffic were affected by refurbishment works and MRT downtime.
- Nevertheless, refurbishment works for Sungei Wang Plaza are coming to a tail-end, with an expected completion by year-end. While the MRT downtime may result in a flat rental growth, CMMT is ideally positioned as a long-term beneficiary of the upcoming Bukit Bintang Central MRT station.
- Business is proceeding as usual at East Coast Mall (attaining the highest rental reversion) despite ongoing asset enhancement initiatives since April, i.e. reconfiguration of existing areas and conversion of some car park bays on third floor into retail space. We see further upside in rental upon completion in 4QFY14F, given the low rental base (RM5+psf) and demand for retail space.
- Portfolio occupancy remained strong at 99%. Only 4.2% of the leases are left for renewal this year. FY14F will see a strong 44% of leases due for renewal.
- Gearing remains comfortable at 28%. Average cost of debt stands at 4.3% vs. 4.7% in 2QFY13.
- All in all, our EPU estimates are unchanged, with the assumption that Queensbay Mall will be injected next year.
- A potential acquisition could be in the making given that:- (1) Right of first refusal on Queensbay Mall from its sponsor; we think that the mall is already a ready and yield-accretive asset; and (2) CMMT is awarded a letter of intent to explore the possibility of acquiring Tropicana City Mall and its office building.
- We continue to believe that CMMT has a first mover acquisition advantage, in which the group will be the first to embark on acquisition compared to the other retail REITs.
Source: AmeSecurities