Capitaland Mall Trust (SGX: C38U) has recently announced its 3Q 2020 financial results. Its DPU was up marginally by 1.3% to 3.1 cents. It is trading 4.27% based on its last traded price of $1.89 on 22 Oct.
Key Highlights:
Distribution per unit (DPU) and Dividend Yield (4.27%)
Price to book ratio (0.95)
Gearing (34.4%)
Interest coverage ratio (4.0x)
Portfolio occupancy rate (98%)
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 third-quarter tumbled 27.6% to $104.4m. This was mainly due to the $29.5m rental waivers given to its eligible tenants who are affected by Covid-19. However, its DPU was up by 1.3% as there was a release of $36.4m distributable income which was retained in 1H 2020.
Based on its latest price, the REIT is currently trading at about 4.27% dividend yield. Historically, the REIT has been paying very consistent DPU, with steady growth over the years. Based on the 1st nine months results, Capitaland Mall Trust posted a drop of more than 31.6% 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 0.95. The current level indicates a 14% 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 4.3 years.
4. Interest coverage ratio
Capitaland Mall Trust has an interest coverage ratio of 4.0 times, which is at 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 98%. Most of its properties remain at almost full occupancy. This shows that its portfolio is well-positioned at a strategic location.
6. Growth Catalyst
As the retail segment continues to be challenging, the REIT continues to drive its omnichannel retailing. The REIT is on track to onboard 500 tenants to its new twin digital platforms, eCapital Mall and Capital3Eats. It will tap on its 1.1 million CapitaStar platform users to drive its digital sales. Since its Phase 2 reopening, the shopper traffic has recovered to 60% of its pre-covid level. Transition to Phase Three of reopening of economy is expected to have a positive impact on the retail sector.
Separately, both Capitaland Mall Trust and Capita Commercial Trust are still working to complete the merger. Both REITs have obtained the approval during the EGMs respectively. Based on the timeline, the combined REIT should start trading on 3 November.
Summary
In the near term, the REIT is unattractive at its current price level which offers a yield of less than 5%. However, the recent results have been positive and the REIT has a proven track record with a strong and resilient portfolio. With the merger proposal on the plate, the combined REIT with a larger market capitalisation might attract portfolio addition by the institution funds. The REIT is likely to outperform in the coming months.
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