CapitaLand Mall Trust - RHB Invest 2020-05-04: Navigating Structural Headwinds


CapitaLand Mall Trust - Navigating Structural Headwinds

  • Stay NEUTRAL with a lower Target Price of SGD2.03 from SGD2.38, 7% upside with c.5% yield.
  • CapitaLand Mall Trust’s 1Q DPU excluding retention, was inline. We expect COVID-19 pandemic to have the biggest long-term impact on the retail sector, accelerating the structural headwinds.
  • CapitaLand Mall Trust’s good asset quality, strong sponsor backing and proposed merger mitigate some of the risks.

A decent 1Q but full impact of circuit breaker (CB) will flow through in 2Q.

  • CapitaLand Mall Trust (SGX:C38U)’s income available for distribution (1Q) dipped 13% y-o-y, mainly due to the provision of half month rental rebates (March) without which it would have been flattish.
  • CapitaLand Mall Trust retained SGD69.6m of this tax exempt income, resulting in a 70.5% y-o-y drop in 1Q DPU to SGD 0.85.

Downtown malls more impacted than the sub-urban malls.

  • Portfolio occupancy dipped 0.8ppt to 98.5% with main contributors being Clarke Quay (95.9%), Bugis Junction (98.8%) and The Atrium at Orchard (98.5%). Management noted that among its assets, Clarke Quay has the biggest downside risk.
  • Portfolio rent reversion (1Q) was still a slight positive at 1.6% but this is not representative of the current market as majority leases were signed pre COVID-19.
  • Shoppers’ traffic and tenant sales were down 9.1% and 7.5% y-o-y respectively, with a sharp drop expected in 2Q. Even after CB measures are likely lifted on 1 Jun, safe distancing measures are likely to remain for a while which will impact crowds in mall.

COVID-19 likely to have long-term impact on lease structuring.

  • Management expects the turnover rent component which accounts for c.5% of total, to rise over time with COVID-19 forcing landlords to take a higher share of risk.
  • To date, CapitaLand Mall Trust has committed to a rental rebate package of SGD114m (including property tax rebates) which translates to rent rebates of c.2 months. In addition, eligible tenants were granted a waiver on their turnover rent and were permitted to use a one-month security deposit to offset their rents in Mar 2020.
  • Management stands prepared to provide additional support to tenants where necessary as the current situation remains fluid.

Proposed merger with CCT still on track.

A healthy balance sheet and a strong credit rating.

  • CapitaLand Mall Trust’s gearing of 33.3% is among the lowest among retail S-REITs, with a healthy interest cover of 4.7x. 100% of its debt is unencumbered and 97% fixed.

CapitaLand Mall Trust's DPU and DDM changes.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-05-04
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 2.03 DOWN 2.380