Does Capitaland Mall Trust (SGX: C38U) Share Price of $1.84 Look Attractive



Capitaland Mall Trust (SGX: C38U) has recently announced its first-quarter 2020 financial results. It was last traded at $1.84 based on its closing price on 6 May.


Key Highlights:


  • Distribution per unit (DPU) and Dividend Yield (5.6%)

  • Price to book ratio (0.88)

  • Gearing (33.3%)

  • Interest coverage ratio (4.6x)

  • Portfolio occupancy rate (98.5%)

  • Positive rental reversion (1.8%)

  • Growth catalyst

  • Covid-19: Managing the unexpected event


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 the quarter rose 5.9% to $148.3m. This was mainly supported by an additional $15.8m income from Funan, which was reopened in June last year. While there was a jump on net property income, the distributable income was down by 70.3% to $31.6m. The income is retained during this critical period for working capital purposes and to release relief packages to support its tenants.


Based on its latest price, the REIT is currently trading at about 5.6% dividend yield. Historically, the REIT has been paying very consistent DPU, with steady growth over the years.


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, which is well below its historical average.


3. Gearing


Portfolio leverage remains conservative at 33%, which gives Capitaland Mall Trust an extra $4.4b of debt headroom for future growth and acquisitions. MAS has recently relaxed the rule to increase the gearing ceiling to 50%. However, we would prefer REITs that have a gearing ratio of below 38%.


4. Interest coverage ratio


Capitaland Mall Trust has an interest coverage ratio of 4.6 times, which is slightly above our preference of 4 times. Besides, the REIT maintains an overall interest cost of 3.2%.


5. Portfolio occupancy rate


Portfolio occupancy remains high at 98.5%. 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 quarter, the REIT has renewed 192 leases with a retention rate of 88%. The good news is the REIT still managed to achieve a positive rental reversion of 1.6% during this critical period.

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

7. Growth Catalyst


Moving forward, the REIT management expects its suburban malls to be more resilient. However, the impact of Covid-19 is expected to deepen in the 2nd quarter due to circuit breaker. During the past two months, only 25% of its tenants are operating. The weak shopper traffic would put some pressure on the rental reversion in the coming months.


All asset enhancement initiatives are deferred except for the ongoing works at Lot One Shoppers Mall.



8. Covid-19: Managing the unexpected event


Capitaland Mall Trust has announced a $114m rental relief package, which is equivalent to 2-month rental and it is inclusive of property tax rebates. Post circuit breaker, the REIT is prepared to extend further support to its tenants as it expects the retail environment to remain challenging.


Besides, the Singapore government has recently passed legislation to allow for rental deferments by tenants affected for a period of six months.


Summary


In the near term, we would expect the DPU to be affected at least for the next two quarters. However, the REIT is highly likely to recover stronger after this pandemic is over. The REIT’s growth in distributable income during the past 10 years certainly speaks well of its resilience. 


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