• New proposed bill to protect tenants against potential rent payment defaults has further elevated earnings and cashflow risks for landlords, especially retail REITs.
• Dividend reduction by one of its peers may result in a near-term knee-jerk reaction on share price.
• CapitaLand Mall Trust's share price have priced in some of these negatives after a 34% decline from its peak in Jan20 and now trades at 0.8x P/NAV, below -1.5SD.
• Downgrade to HOLD; Target Price lowered to S$1.75.

Preserving the Ecosystem

Tenant rebates to tide tenants through end of May

• CapitaLand Mall Trust (SGX:C38U) is committed to preserve the ecosystems within CapitaLand Mall Trust’s malls during the COVID-19 outbreak. First wave of tenant rebates included a half month rental rebate for a select group of tenants and S$10m in marketing assistance to all tenants.
• To relief potential cash flow burden, security deposits held by CapitaLand Mall Trust was used to offset against rents for the month of March.
• In the light of the recent suspensions legally enforced on certain trade sectors (Entertainment & Education tenants), and the general worsening of the COVID-19 outbreak within Singapore, CapitaLand Mall Trust will be extending rental rebates from half a month to 2 months (over April and May).
• This will be partially offset by property tax relief for the entire year provided by the government in the supplementary budget, which will neutralise approximately 1 month’s worth of rental rebates.

Low tourist traffic impacting central malls and IMM

• Central malls - Bugis Junction, Clarke Quay, Raffles City - and outlet mall IMM are traditionally malls that have a higher percentage of tourist traffic and will be hit more compared to heartland malls.
• Clarke Quay also stands as one of the main tourist attractions along the Singapore River, and is home to a number of clubs and bars which are under suspension until the end of April.
• As companies in the central region implement business continuity plans, the working crowd within the central business district of Singapore is generally much thinner than usual, hurting food & beverage and services tenants within central malls.
• Fairmont Singapore (part of the Raffles City integrated development) is one of the hotels shortlisted by the government to temporarily house Singaporeans returning from abroad as they serve their ‘Stay Home Notice’. The hotel will see visibly higher occupancy for at least the next 3 months.

Operational Update

• On the ground, all malls under CapitaLand Mall Trust will be implementing social distancing measures to ensure low crowd densities of no more than 1 person in every 16sqm of usable space. Queues to enter malls had been implemented, and shopper traffic redirected to adhere to the guidelines.
• Entertainment & leisure and education tenants which contribute 5% and 2% to CapitaLand Mall Trust’s gross rental income, will temporary stop operations for one month. Similarly, CapitaLand Mall Trust will be forfeiting rents from these tenants for the period they face suspension.
• New lease momentum had been slow given the difficult times, and CapitaLand Mall Trust will be extending shorter term lease tenures (6-9 months) to tenants reviewing leases.
• Capital expenditure plans will likely be low in terms of priority and likely deferred towards year end.
• In terms of cash flow, CapitaLand Mall Trust has sufficient untapped debt facilities to more than cover loan refinancing for the year (S$310m).

Source: DBS Research - 2 Apr 2020