Is CapitaLand Mall Trust (SGX: C38U) Share Price At S$2.50 Considered A Steal?
 
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Is CapitaLand Mall Trust (SGX: C38U) Share Price At S$2.50 Considered A Steal?

Sudhan P
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At the time of writing, CapitaLand Mall Trust (SGX: C38U) is trading at a share price (technically known as unit price for REITs) of S$2.50.

At that unit price, CapitaLand Mall Trust has a price-to-book (PB) ratio of 1.2 and a distribution yield of 4.7%.

Does CapitaLand Mall Trust represent a buying opportunity at its unit price of S$2.50?

Let’s explore using our 10-step guide to pick the best Singapore REITs.

How to pick the best REITs

As a summary, here are the 10 steps I use to pick the best Singapore REITs:

  1. Growth in Gross Revenue and Net Property Income
  2. Growth in Distribution Per Unit
  3. Property Yield of Between 5% and 9%
  4. Gearing Ratio of Below 40%
  5. Interest Coverage Ratio of Above 5x
  6. Healthy Portfolio Occupancy Rate
  7. Positive Rental Reversions
  8. Presence of Growth Prospects
  9. Acceptable Price-to-Book Ratio
  10. Distribution Yield of Above 5%

Business Background

Before we analyse CapitaLand Mall Trust, let’s take a quick look at what its business is all about.

Currently, CapitaLand Mall Trust is the biggest shopping mall owner in Singapore with 15 shopping centres scattered all over the Lion City. Some of the shopping malls it owns are Bugis Junction, JCube, Plaza Singapura, and Tampines Mall.

As of 30 September 2019, CapitaLand Mall Trust had a market capitalisation of slightly below S$10 billion.

CapitaLand Mall Trust portfolio
Source: CapitaLand Mall Trust Corporate Presentation

CapitaLand Mall Trust’s shopping malls are strategically located near major transport networks and population catchments. This makes it very convenient for shoppers, for example, to get their stuff from the REIT’s malls after exiting from an MRT station before heading back home.

CapitaLand Mall Trust location
Source: CapitaLand Mall Trust Presentation at Morgan Stanley 18th Annual Asia Pacific Summit

CapitaLand Mall Trust’s sponsor is CapitaLand Limited (SGX: C31), one of Asia’s largest diversified real estate property companies. A strong sponsor in CapitaLand adds to CapitaLand Mall Trust’s attractiveness.

1. Gross Revenue and Net Property Income (NPI) Check

Check for: Increasing gross revenue and NPI

From 2014 to 2018, CapitaLand Mall Trust’s gross revenue rose 1.4% each year, from S$658.9 million in 2014 to S$697.5 million in 2018.

Meanwhile, net property income grew from S$448.4 million to S$493.5 million, increasing at a clip of 2.4% per annum.

 20142015201620172018Compound Annual Growth Rate (CAGR)
Gross revenue
(S$' million)
658.9669.0689.7682.4697.51.4%
Net property income
(S$' million)
448.4466.2479.7478.2493.52.4%

If you notice, CapitaLand Mall Trust’s gross revenue for 2017 fell 1.1% year-on-year.

The decline was largely due to Funan’s closure for redevelopment from 1 July 2016.

However, on a comparable basis (excluding Funan and Rivervale Mall, which was sold in December 2015), gross revenue would have inched up by 0.6%.

Since 2018’s gross revenue has surpassed that of 2016, I’m not too concerned.

We should also note that Funan has opened its doors on 28 June 2019 after a three-year makeover.

Verdict: Pass

2. Distribution Per Unit (DPU) Check

Check for: Increasing DPU

From 2014 to 2018, CapitaLand Mall Trust’s DPU grew around 6% in all.

 20142015201620172018CAGR
Distribution per unit (Singapore cents)
10.8411.2511.1311.1611.501.5%

DPU in 2016 fell by 1.1% year-on-year largely due to the closure of Funan and divestment of Rivervale Mall.

However, in 2018, DPU has exceeded that of the previous years. So, all’s good here.

Verdict: Pass

3. Property Yield Check 

Check for: Property yield of between 5% and 9%

For 2018, CapitaLand Mall Trust’s property yield stood at 5.2%, which is within my range.

Verdict: Pass

4. Gearing Ratio Check

Check for: Gearing ratio below 40%

As of 30 September 2019, CapitaLand Mall Trust had a gearing ratio (also known as aggregate leverage) of 34.4%.

CapitaLand Mall Trust gearing ratio - 30 Sept 2019
Source: CapitaLand Mall Trust 2019 third-quarter earnings presentation

The gearing ratio is well within my threshold of 40%.

Verdict: Pass

5. Interest Coverage Ratio Check

Check for: Interest coverage ratio above 5 times

As of end-September 2019, CapitaLand Mall Trust’s interest coverage ratio stood at 4.7x, which is not to my liking.

CapitaLand Mall Trust interest cover - 30 Sept 2019
Source: CapitaLand Mall Trust 2019 third-quarter earnings presentation

Verdict: Fail

6. Portfolio Occupancy Rate Check

Check for: Healthy portfolio occupancy rate

CapitaLand Mall Trust’s portfolio is almost fully occupied at a rate of 98.9%, as of 30 September 2019.

During the same period, Funan had an occupancy rate of 98.7%, up from 94.7% on 30 June 2016.

(Reminder: Funan was shuttered for redevelopment on 1 July 2016 and re-opened on 28 June 2019.)

CapitaLand Mall Trust portfolio occupancy - Sept 2019
Source: CapitaLand Mall Trust 2019 third-quarter earnings presentation

Verdict: Pass

7. Rental Reversion Check

Check for: Positive rental reversions

Rental reversion from 1 January 2019 to 30 September 2019 was 1.2%. Even though this looks low, I’m happy that the figure is positive, amid the headwinds in the retail sector.

Verdict: Pass

8. Growth Prospects Check

For CapitaLand Mall Trust’s 2019 third-quarter, Funan contributed to the first full quarter after its opening (the second quarter ended 30 June 2019 only saw a few days of contribution).

Funan’s contribution, together with a 100% contribution of Westgate, led to a 17.9% year-on-year improvement in gross revenue for the third quarter. In November 2018, CapitaLand Mall Trust acquired the balance 70% of Westgate.

Due to the above factors, DPU for the 2019 third-quarter climbed 4.8%.

For the full-year of 2019, investors can expect DPU to be higher than 2018’s 11.50 Singapore cents due to contributions from Funan and Westgate.

Another growth avenue for CapitaLand Mall Trust is through the rejuvenation of Lot One Shoppers’ Mall.

Tony Tan, chief executive of the REIT’s manager, commented the following in the 2019 third-quarter earnings release:

“The rejuvenation of Lot One Shoppers’ Mall is underway. Shoppers can look forward to an expanded public library and reformatted cinema which will offer more entertainment variety for movie goers progressively from 2H 2020.”

The above initiatives are part of CapitaLand Mall Trust’s four-pronged approach to grow.

CapitaLand Mall Trust Growth Strategies
Source: CapitaLand Mall Trust Presentation at Morgan Stanley 18th Annual Asia Pacific Summit

The Westgate acquisition (portfolio reconstruction), and sprucing up of Funan and Lot One Shoppers’ Mall (active asset management) are part of CapitaLand Mall Trust’s growth strategies.

CapitaLand Mall Trust can also ride on the growth of the Singapore population, which is estimated to reach 6.5 to 6.9 million by 2030.

Verdict: Pass

9. Price-to-Book Ratio Check

Check for: Acceptable price-to-book ratio 

At CapitaLand Mall Trust’s unit price of S$2.50, it is valued at a PB ratio of 1.2x.

Over the past five years, the REIT’s average PB ratio was 1.1x.

Therefore, right now, CapitaLand Mall Trust looks expensive to me.

Verdict: Fail

10. Distribution Yield Check

Check for: Distribution yield to be above 5% 

At CapitaLand Mall Trust’s unit price of S$2.50, it has a distribution yield of 4.7%, which is low for my liking.

Verdict: Fail

The Final Verdict

CapitaLand Mall Trust has a final score of 7/10. 

I like CapitaLand Mall Trust mainly for its market leadership in the Singapore retail mall market, growth in DPU, high portfolio occupancy rate, and for having management with foresight.

However, its valuations are high right now. 

Having said that, I already own units in CapitaLand Mall Trust, and I’m happy to hold on.

I may consider adding on to my position if the valuations come down to more palatable levels, and there are no better alternatives.

Want To Leave Your Thoughts on CapitaLand Mall Trust?

Why not check our Seedly Community and drop your question or analysis on CapitaLand Mall Trust there.

Stock Discussion on CapitaLand Mall Trust

Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock.

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About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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