Does Capitaland Mall Trust (SGX: C38U) Share Price of $1.96 Look Attractive



Capitaland Mall Trust (SGX: C38U) has recently announced its first-half 2020 financial results. It was last traded at $1.96 based on its closing price on 27 July.


Key Highlights:


  • Distribution per unit (DPU) and Dividend Yield (4.4%)

  • Price to book ratio (1)

  • Gearing (34.4%)

  • Interest coverage ratio (4.3x)

  • Portfolio occupancy rate (97.7%)

  • Positive rental reversion (0.1%)

  • Growth catalyst


Background of Capitaland Mall Trust


Capitaland Mall Trust was the first REIT listed on Singapore Stock Exchange in 2002. It is the biggest retail REIT, with a focus on retail properties in Singapore. The REIT owns and manages 15 retail properties, which are strategically located near the MRT/LRT stations.


Its has a strong sponsor, Capitaland (SGX: C31), one of the biggest property developers in Singapore. Capitaland has been providing the REIT with a pipeline of mature assets over the years.


1. Distribution per unit and dividend yield


Net property income for second-quarter tumbled 48.9% to $68.1m. This was mainly due to lower gross rental income as there was $74.1m rental waivers given to its tenants who are affected by Covid-19. Thus, its DPU was down by 27.7%. During the 1st half of 2020, its shopper traffic was down by 40.6% and retail sales fell 15.4%. The good news is the shopper traffic starts to pick up since the Phase 2 re-opening of Circuit Breaker.


Based on its latest price, the REIT is currently trading at about 4.4% dividend yield. Historically, the REIT has been paying very consistent DPU, with steady growth over the years. Based on the 1st half results, Capitaland Mall Trust posted a drop of more than 40% in DPU year-on-year.


2. Price to book ratio


Over the past 8 years, Capitaland Mall Trust has been trading at an average price to book ratio os 1.1. The recent price correction due to Covid-19 has brought down the ratio to 0.89 (the lowest) and the recent recovery have brought the ratio back up 1.0. The current level indicates a 10% discount based on its historical valuation.


3. Gearing


Portfolio leverage remains conservative at 34.4%, which gives Capitaland Mall Trust an extra $4.4b of debt headroom for future growth and acquisitions. The debt tenor remains healthy at an average of 4.5 years.


4. Interest coverage ratio


Capitaland Mall Trust has an interest coverage ratio of 4.3 times, which is slightly above our preference of 4 times. Besides, the REIT maintains an overall interest cost of 3.1%.


5. Portfolio occupancy rate


Portfolio occupancy remains high at 97.7%. Most of its properties remain at almost full occupancy. This shows that its portfolio is well-positioned at a strategic location.

Source: Capitaland Mall Trust's First Quarter Financial Results Presentation

6. Positive rental reversion


Over the last 6 months, despite the Covid-19 pandemic, Capitaland Mall Trust still managed to renew 291 leases with a retention rate of 90% and a small rental reversion of 0.1%.

Source: Capitaland Mall Trust's First Quarter Financial Results Presentation

7. Growth Catalyst


As the retail segment continues to be challenging, the manger is exploring alternative leasing strategies to adapt to the new environment and to sustain a healthy occupancy rate.


Separately, both Capitaland Mall Trust and Capita Commercial Trust are still working to get the approval from their respective shareholders for proposed merger before 30 Sep. If the proposal is approved, the combined REIT will be the third largest REIT in Asia with a market capitalisation of $16.8b.



Summary


In the near term, the REIT is unattractive at its current price level which offers a yield of less than 5%. Besides, we would expect the DPU to be affected at least for the next two quarters. However, the REIT has a proven track record with a strong and resilient portfolio. With the merger proposal on the plate, the REIT is likely to hold its current price level in the coming months.


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