CapitaLand Mall Trust (“CMT”) is the first real estate investment trust (“REIT”) listed on Singapore Exchange Securities Trading Limited in July 2002. CMT is also the largest retail REIT by market capitalisation, approximately S$9.1 billion (as at 31 December 2019) in Singapore.
CMT also owns the largest mall floor space among its Singapore peers. As of 31 December 2019, they owned 15 properties in Singapore. Below is extracted from their annual report.
Their rental income is heavily weighted towards Food & Beverage at 31.1%. This in my opinion however is becoming the new norm. With the rise of the online e-commerce websites, retail selling goods are no longer able to compete with these online shops. However, as of today you are unable to replicate services rendered to you through online experience. As such we will continue to see a rise of the service industry. Refer to the breakdown of rental income as below:
Mapletree Commercial Trust
I like to highlight why I prefer CMT as compared to its close peer, Mapletree Commercial Trust (“MCT”) (SGX: N2IU). It is worth noting that the asset bases are not a fair comparison given that MCT has commercial assets. However, it is common for people to compare this 2 side by side when making a decision on which REIT to invest. So this section will attempt to address my favour.
This is due to everything about CMT is more value for money. Refer to comparison below.
On the assumption that the share price are constantly lock in tandem, as you can see, as a shareholder you will be able to gain more value by purchasing CMT shares.
It is common for shareholders to pay a premium for all the Mapletree family stocks. I believe this is attributable to the Mapletree brand being seen to be more prestigious. While I do not have any comments on that, I would think that the CapitaLand is not one shrouded with issues and is reputable as well. No reason to pay a significant premium for the Mapletree shares.
Dividend yield
For CMT, we should actually move forward expecting no dividend from them for at least 2020 and 2021. This is due to my view that retail will be hit the worst from the Covid-19. Any additional dividends is considered a bonus but expect a yield at best around 2% for conservative.
For reference, at the current share price of $2.07, dividend yield is 5.7% based on a distribution of 12 cents per share.
Key things to note
Front line business
Malls being front line business will be affected the most. In view of all the restrictions that are being implemented, footfall is only expected to decrease. While news media like to hype up about the malls to be fully reopened soon, here are two factors to consider:
- Sales of services (includes restaurants) can only operate at around half capacity given new social distancing measures, such as alternate sitting.
- Sales of goods will fall. In the last 2 months, most shops were temporary closed. The result is that customers would have found alternative platforms to purchase their necessities and will continue to use them post circuit breaker.
From the above, I do not believe that any of the “pent up demand” the news are reporting is sustainable. For sure we will have massive crowds for the first few days but eventually we will revert back smaller crowds.
In view of this, revenue for the tenants will be adversely affected. No amount of rental rebates will help them be profitable if there are no business. In this sense, I am expecting more closures to come if the government are to cut back on any financial support.
Rights issue
As of today, there are no rights issue announcement. However, my expectation is that Covid-19 will be here for a longer term till after 2020. Main reason being that based on historical trend, most pandemics have died down by around May. However as of June 2020, Covid-19 still persists, and a 2nd wave is expected to occur soon.
In view of the above, I expect that the future discounted cash-flows will be more adversely impacted than what the analysts have currently priced in. Valuations of properties are expected to decrease.
CMT does not have any issues of breaching the gearing ratio of 50% currently imposed by the Monetary Authority of Singapore. However, they may take the opportunity to raise funds in order to make yield accretive acquisitions. In the short term it is unlikely to happen as they will need to complete the merger with CapitaLand Commercial Trust first. However I am not discounting the possibility in the future. Shareholders will need to set aside some funds to prevent dilution.
Conclusion
As part of my usual disclaimer, I am expecting more headwinds due to Covid-19. CMT being one of the bigger REITs and with the upcoming merger, they will be in one of the better positions to weather the economic downturn. However, we will have to keep in mind of share price depreciation in the short term before things improve for the better.
