CapitaLand Mall Trust - DBS Research 2020-07-07: Jumping On The Bandwagon; Returning Office Crowds A Boost To Central Malls


CapitaLand Mall Trust - Jumping On The Bandwagon; Returning Office Crowds A Boost To Central Malls

  • Returning office crowds a boost to central malls such as Raffles City and Bugis Junction.
  • CapitaLand Mall Trust's portfolio income at risk well-contained at c.24%.
  • Trading yield premium of 70bps against Frasers Centrepoint Trust, alongside a 22% y-o-y DPU recovery next year, a strong value proposition.
  • New Target Price for CapitaLand Mall Trust implies 1.13x P/Bk and 5% forward dividend yield.

Returning office crowds a boost to central malls

  • With the onset of post-Circuit Breaker measures in Singapore, workers operating out of the ‘essential businesses’ segment will gradually be allowed to resume work.
  • Workers from the finance and insurance sectors will be allowed to return to the office while enforcing safe management measures to lower transmission risks.
  • While CapitaLand Mall Trust (SGX:C38U)’s suburban retail malls will likely be the prime beneficiary of higher shopper traffic, the returning office crowd will add a boost to the central malls within CapitaLand Mall Trust’s portfolio such as Raffles City Shopping Centre and Plaza Singapura in terms of weekday shopper footfall.
  • Central malls contributed c.37% of CapitaLand Mall Trust’s GRI in FY19, with footfall originating from the office crowd, tourist traffic and locals.
  • Clarke Quay, which we consider a higher risk asset within CapitaLand Mall Trust’s portfolio due to a large exposure to entertainment tenants, will likely remain quiet until phase 3 of post- Circuit Breakers when entertainment tenants will be allowed to resume operations.

Downside risks contained at c.24% of portfolio

  • Rental revenues from dominant malls contributed c.52% of CapitaLand Mall Trust’s revenue in FY19, of which half originated from suburban retail malls.
  • Amongst CapitaLand Mall Trust’s central malls, we estimate that Raffles City generates the highest revenue amongst dominant central malls owned by REITs landlords at S$104 psf/month.
  • Approximately 43% of retail tenants are within the food & beverage and beauty & health trade segments which we think will lead the recovery curve.
  • Downside risks pertaining to high-risk assets that are relatively more dependent on tourist footfall and high-risk trade sectors (within the department store and entertainment trade categories) are limited to c.24% and c.11% of GRI respectively.

Widening yield gap between CapitaLand Mall Trust and Frasers Centrepoint Trust

  • CapitaLand Mall Trust trades at a 0.2% mean yield discount to Frasers Centrepoint Trust (SGX:J69U) based on 5-year historical figures. This yield differential has widened to above 0.7%, or +1 standard deviation levels since Jun 2019. We think that the present yield differential gap is too wide to be ignored and puts CapitaLand Mall Trust at a better value at its current trading price as compared to Frasers Centrepoint Trust.
  • As the worst looks to be over, we urge investors to look beyond the near-term weakness to ride on CapitaLand Mall Trust’s operational recovery. We anticipate DPU to recover 22% y-o-y to 12.1 Scts in FY21.

Maintain BUY recommendation on CapitaLand Mall Trust

Where we differ: Strong suburban recovery with central malls next in line.

  • Dominant suburban malls continue to be at the forefront of shopper traffic recovery with number of visits normalising to > 70% of pre-COVID levels. We believe that this uplift in footfall will soon rotate to central malls as workers return to the office. CapitaLand Mall Trust’s central malls such as Raffles City Shopping Centre and Bugis Junction will likely benefit from a bigger weekday and lunch crowd as Singaporeans return to the Central Business District.
  • An analysis of high-risk assets and trade sectors shows that gross rental income at risk is contained to c.24% of CapitaLand Mall Trust’s portfolio. We currently classify central malls within this risk band but foresee a near-term turnaround should shopper and sales recovery happen earlier than expected.
  • See also report: Singapore REITs - DBS Research 2020-07-07: The Next Chapter; Broadening Rally In 2H20.

Singapore Research DBS Group Research | Derek TAN DBS Research | 2020-07-07
SGX Stock Analyst Report BUY MAINTAIN BUY 2.40 UP 2.150