CapitaLand - DBS Research 2020-08-11: Rebounding From Virus Trough

CAPITALAND LIMITED (SGX:C31)

CapitaLand - Rebounding From Virus Trough

CapitaLand's 1H20 PATMI declined as expected, weighed on by rebates for commercial division and closures in lodging division.
Retail operating metrics gradually improving in 2H20.
Lodging division turned in a surprise profit on stringent cost cutting measures.
Asset recycling target of S$3.0bn remains on track.

CapitaLand (SGX:C31) reported 1H20 operating profit after tax and minority interests (PATMI) of A$261.2m, a 27% drop y-o-y.
PATMI dropped by 89% to S$96.6m; the difference was mainly due to revaluation impairments of S$173.9m and marginal gains (S$9m vs S$139m in 1H19).
The lower PATMI was due to the 4.9% dip in revenues to S$2,207.4m while earnings before interest and taxes (EBIT) dipped by 71% to S$596.8m.
The drop in revenues was mainly due to rental rebates of c.S$158.6m granted to tenants in Singapore, China and Malaysia and drop in the group’s lodging businesses.
The drop in EBIT was offset by new contribution from the Business Parks, Industrial & Logistics division and revenues from commercial properties on the back of the Ascendas-Singbridge consolidation.

A total of S$300m in rental support (excluding government subsidies) is expected to be disbursed, half of these in 1H20. Most retailers reopened in July.
While retail malls were hit hard during the COVID-19 compulsory shut-downs in 1H20, the group indicated that tenant sales/traffic have been improving in recent months.
Across CapitaLand’s various markets, traffic has recovered post-lockdown. China leads the way with retail sales and traffic rebounding 75%/66% in May/June, compared to a year ago.

CapitaLand shared its digital strategy and platform (eCapitaMall and Capita3Eats) to accelerate omnichannel solutions with good response from tenants (1,200 retailers on the China CapitaStar platform) and 400 merchants on twin platforms.
The e-commerce platform has boosted online sales and enabled CapitaLand’s malls to reach out to prospective shoppers beyond the typical mall’s operating hours.

Strong occupancy rates of 84% - 95% across their main geographies as of end-June 2020 with 95% of tenants back at work in China. The business parks (BP) & industrial properties have remained resilient throughout the COVID-19 outbreak with high committed occupancy rates of 88% - 98.4% across its geographies while 89% of tenants have returned to work.
The group have been offering flexible workspace options across its portfolio (Bridge+) and have seen strong take-up in China. Bridge+ have also taken up 56k sqft of space at 79 Robinson Road.
CapitaLand reported positive rental reversion in its office and business parks portfolio in 1H20.

CapitaLand’s lodging business has been significantly impacted by global travel bans due to the ongoing COVID-19. However, it has remained profitable due to cost containment measures across the portfolio. The North Asia market (excluding China) & Singapore have been profitable but this has been offset by losses in Europe, Southeast Asia (excluding Singapore).
Revenue per available room (RevPAR) dropped 43% in 1H20 to S$64/unit. Occupancy rate was maintained at a profitable level of about c.50%.
With the group slowly reopening its hotels, occupancy rate sustained at 50%+ levels despite the pandemic will bode well for the long-term outlook of the lodging segment.

The group (together with its real estate investment trusts (REITs)) have divested S$702.3m of non-core assets ($S301.6m effective interest to the group). Its management maintained its recycling target of S$3bn assets under management (AUM) for 2020.
Some of these opportunities may arise from potential divestments of its business parks (in Singapore/United Kingdom (UK)) to Ascendas REIT (SGX:A17U) or its China assets to CapitaLand Retail China Trust (SGX:AU8U).
See CapitaLand Share Price; CapitaLand Target Price; CapitaLand Analyst Reports; CapitaLand Dividend History; CapitaLand Announcements; CapitaLand Latest News.

Derek TAN DBS Group Research | Rachel TAN DBS Research | https://www.dbsvickers.com/ 2020-08-11

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