CapitaLand Mall Trust - CGS-CIMB Research 2020-10-22: Welcoming The Merged Entity


CapitaLand Mall Trust - Welcoming The Merged Entity

Returning more of its retained income

  • CapitaLand Mall Trust (SGX:C38U)’s 9M20 DPU of 6.06 Scts (-31.6% y-o-y) was below expectations at 67% our full-year forecast as we had underestimated its operating expenses.
  • In 3Q20, CapitaLand Mall Trust released a further S$36.4m of its income retained from 1Q20. CapitaLand Mall Trust has returned the bulk of its retained income. It held only S$10m at end-Sep vs. S$69.6m at end-Mar.
  • 9M20 revenue fell 19.7% y-o-y to S$468.7m, while NPI declined 23.2% y-o-y S320.8m, mainly due to rental waivers of S$106m granted to tenants. The lower revenue was partially offset by the commencement of its operations in Funan in Jun 2019.

Improving tenant sales; tenant retention is key

  • YTD rental reversion declined 4.4% in 9M20 (3Q20: -15% to -20%) vs. +0.1% in 1H20. Raffles City Raffles City reported the largest drop in rental reversion in 9M20 at -15.9% from the renewal of c.11% of the mall’s NLA. IMM, Plaza Sing and Clarke Quay chalked up positive rental reversions.
  • CapitaLand Mall Trust's occupancy remained high at 97.7% in 3Q20, albeit down 0.3% pt q-o-q. 9M20 shopper traffic recovered to c.60% of 9M19's level while tenant sales recovered to c.85%. Suburban malls saw a stronger recovery in tenant sales -- 3Q20 tenant sales recovered to just 3-5% shy of 3Q19's level vs. downtown malls' -20% y-o-y.

Repositioning malls and weaker rental reversion in the near term

  • CapitaLand Mall Trust aims to reposition Clarke Quay and Raffles City while rethinking the trade mix of its Funan mall. As downtown malls, these malls are more vulnerable to the absence of tourists and weak office crowds. CapitaLand Mall Trust’s strategy continues to be striking a balance between mall occupancy and rental rate.
  • We expect some rental support in the future in view of weak trading environment but that will be on a targeted basis. Leases accounting for 29% of its gross rental income would expire in 2021. We see near-term rental pressure, especially for its downtown malls, as long as tourist arrivals continue to be weak. Occupancy cost remains at 18-20% in 3Q20.

Reiterate ADD on CapitaLand Mall Trust

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-10-22
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