CAPITALAND MALL TRUST (SGX:C38U)
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.
- The merger pending unitholders approvals will be done via a scheme consideration with 0.72 CapitaLand Mall Trust units and a cash component of 25.90 cents per unit share of CapitaLand Commercial Trust (SGX:C61U) (NEUTRAL, Target Price: SGD1.70, see CapitaLand Commercial Trust - RHB Invest 2020-04-30: Preparing For Uncertainties Ahead). The current long-stop date for the merger is at the end of September 2020.
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.
- Our FY20-22F DPU is lowered by 15%, 5% and 5% factoring in rent rebates (2020), lower occupancies and rent growth. Our COE is also raised by 50bps by raising the market risk premium.
- See CapitaLand Mall Trust Share Price; CapitaLand Mall Trust Target Price; CapitaLand Mall Trust Analyst Reports; CapitaLand Mall Trust Dividend History; CapitaLand Mall Trust Announcements; CapitaLand Mall Trust Latest News.
Vijay Natarajan
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-05-04
SGX Stock
Analyst Report
2.03
DOWN
2.380
