CapitaLand Mall Trust - OCBC Investment 2020-10-23: More Work To Be Done From Here


CapitaLand Mall Trust - More Work To Be Done From Here

  • CapitaLand Mall Trust's 3Q20 DPU rose 1.3% y-o-y due to release of retained income.
  • Occupancy held firm but rental outlook remains soft.
  • Looking to reposition Clarke Quay, Funan and Raffles City.

CapitaLand Mall Trust's 3Q20 results in-line with our expectations

  • CapitaLand Mall Trust (SGX:C38U) reported its 3Q20 results which met our expectations. Gross revenue and NPI dipped 25.3% and 27.6% y-o-y to S$150.3m and S$104.4m, respectively. This was driven largely by rental waivers of S$29.5m granted to tenants, coupled with lower gross turnover rental and other income.
  • However, DPU rose 1.3% y-o-y to 3.10 S cents as CapitaLand Mall Trust had released S$36.4m (~0.99 S cents/unit) out of the S$46.4m of taxable income available for distribution which was retained in 1H20. Although this was a one-off boost, we view it as a signal that CapitaLand Mall Trust is more confident on the outlook for it to release the bulk of its income previously retained.
  • For 9M20, CapitaLand Mall Trust’s NPI fell 23.2% to S$320.8m. DPU of 6.06 S cents represented a decline of 31.6% and formed 65.7% of our FY20 forecast.

Portfolio occupancy inched up to 98.0%, but rentals weakened

  • CapitaLand Mall Trust’s portfolio occupancy improved slightly by 0.3 ppt q-o-q to 98.0%. However, rental reversions were negative at -4.4% for 9M20, due to the drag in 3Q20 (-15% to -20%). This was attributed to the soft operating environment, coupled with management adopting a more flexible lease structure such as accepting a lower first-year base rent with step-ups in subsequent years.
  • Shopper traffic and tenants’ sales psf fell 40.3% and 11.4% y-o-y in 3Q20, with the respective recovery at ~60% and ~89% of pre-COVID-19 levels. While the overall operating landscape remains challenging, there are encouraging signs. These include an improved momentum in sales for a number of trade categories (led by Home Furnishing and Sporting Goods), tenants proactively rolling out new concepts and CapitaLand Mall Trust’s occupancy cost remaining within its comfortable level of 18-20%. Some tenants have also expressed interest to expand, although this would likely happen only in late 2021 or 2022.
  • We expect rental waivers to moderate ahead, as this would be granted on a more targeted basis.

Looking to reposition some of its malls

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-10-23
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