CAPITALAND MALL TRUST (SGX:C38U)
CapitaLand Mall Trust - 2Q20 The Worst Is Over
- Results were affected by rental waivers of S$76.5m granted to tenants affected by the COVID-19 pandemic. However, CapitaLand Mall Trust released S$23.2m, or one-third of the taxable distribution of S$69.6m retained during 1Q20.
- Shopper traffic has recovered steadily since the transition to Phase 2 of reopening and tenant sales are gaining momentum. Recovery is slowly but surely taking root.
- Maintain BUY. Target price: S$2.55.
CapitaLand Mall Trust's 2Q20 Results
- CapitaLand Mall Trust (SGX:C38U) reported DPU of 2.11 S cents, down 27.7% y-o-y but in line with our expectations. Distributable income of S$78.1m was lower by 27.5% y-o-y and included the release of S$23.2m or one-third of the taxable distribution of S$69.6m retained during 1Q20. See CapitaLand Mall Trust Announcements.
Hit by rental waivers.
- Gross revenue dropped 39.8% y-o-y due to rental waivers of S$76.5m granted to tenants affected by the COVID-19 pandemic, partially offset by new contribution from Funan of S$10.7m (commenced operations at end-June in 2019).
Maintained positive rental reversion in 1H20.
- CapitaLand Mall Trust achieved mild positive rental reversion of 0.1% on a portfolio basis in 1H20 (1Q20: +1.6%).
- Major contributors were
- IMM Building (+2.1%),
- Clarke Quay (+2.5%)
- Junction 8 (+1.6%) and
- Plaza Singapura (+2.9%).
- Mathematically, rental reversion could be at a negative 1.4% in 2Q20. Retention rate was healthy at 90%.
Portfolio occupancy dipped slightly by 0.8ppt q-o-q to 97.7% as at Jun 20 (Mar 20: 98.5%).
- Occupancy at Clarke Quay eased 3.6ppt q-o-q to 92.3%. Some entertainment venues are still not allowed to re-open in Phase 2 due to the higher risk of COVID-19 transmission, causing pre-termination of some leases at Clarke Quay.
Mild decline in capital values.
- CapitaLand Mall Trust recognised decline in fair value of investment properties of S$265m (Funan: -S$33m, Plaza Singapura: -S$49m and Westgate: -S$44m). The paring down was due to expectations of lower rents, while cap rates have remained unchanged.
- Raffles City Singapore, in which CapitaLand Mall Trust has a 40% stake, saw a decrease in fair value of S$47.2m. Thus, NAV/share decreased 4.2% q-o-q to S$2.01.
Aggregate leverage remains low at 34.4%.
- CapitaLand Mall Trust has committed credit facilities in place for refinancing of debt of S$226m due in 2020. Average term to debt maturity is 4.5 years. Interest coverage ratio is also healthy at 4.3x. CapitaLand Mall Trust adopts a prudent approach to working capital management in anticipation of need for rental relief.
Tenant sales gaining momentum.
- Management has maintained a cautious view due to the uncertain economic climate. Currently, 95% of CapitaLand Mall Trust’s tenants have resumed operations. Tenant sales are gaining momentum although consumer sentiment remains cautious.
Steady recovery of shoppers’ traffic post-circuit breaker.
- Shopper traffic and tenant sales in 2Q20 contracted 40.6% and 15.4% y-o-y respectively in 1H20 due to the nationwide Circuit Breaker, which lasted eight weeks (7 April to 1 June). However, shopper traffic has recovered steadily since the transition to Phase 2 of reopening (19 June to 5 July) to 53% of the level prevailing a year ago (downtown malls: 49%, suburban malls: 57%)
- Tenant sales have declined at smaller degree relative to shoppers’ traffic in 1H20 due to strong sales from supermarkets (+18.6% y-o-y) and pent-up demand for books & stationary, IT & Telecommunications and electrical & electronics.
Tenant relief package.
- CapitaLand Mall Trust has committed a rental relief package totalling S$154.5m (rental waivers bear by CapitaLand Mall Trust: S$76.5m, property tax rebates and cash grants from government: S$78m). The package includes rental relief for qualifying SMEs in accordance with the COVID-19 (Temporary Measures) (Amendment) Act 2020. Management has seek clarification from the authorities on whether the classification of SMEs is based on entity level or group level.
- CapitaLand Mall Trust has also waived turnover rent until June. Tenants who have submitted requests for rental deferral accounted for less than 1% of total NLA.
Flexible leasing to adapt to new operating environment.
- CapitaLand Mall Trust will explore alternative leasing strategies to maximise occupancy, including:
- signing short-term extension, and
- restructure leases with higher turnover rent and lower fixed rents during the initial years and vice versa during the later years.
Maintain BUY for CapitaLand Mall Trust
- We have lowered our 2020 DPU forecast by 17% (impact of COVID-19 (Temporary Measures) (Amendment) Act 2020) but trimmed our FY21 DPU forecast by 3%. We have assumed that CapitaLand Mall Trust will release another one-third of distributable income retained in 1Q20 of S$23.2m during 3Q20. We estimate payout ratio at about 92% for 2020.
- Maintain BUY. Our target price of S$2.55 is based on DDM (cost of equity: 6.0%, terminal growth: 1.5%).
- 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.
- CapitaLand Mall Trust's share price catalysts:
- Gradual but steady recovery in shopper traffic and tenant sales, accompanied by progressive easing of social distancing measures.
- Asset enhancement initiative for Lot One Shoppers' Mall.
Jonathan KOH CFA
UOB Kay Hian Research
|
Peihao LOKE
UOB Kay Hian
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https://research.uobkayhian.com/
2020-07-23
SGX Stock
Analyst Report
2.55
DOWN
2.600