1Q20 Operationally in Line, 6.5% Dividend Yield

• CapitaLand Mall Trust (SGX:C38U)’s 1Q20 was in line operationally (to both consensus and MKE), even as DPU fell 70.5% y-o-y as it retained SGD69.6m of income.
• We lowered earnings by 6-15% to reflect its rental-relief package, lower occupancies and near-term rent pressure. CapitaLand Mall Trust Share Price have retreated further than the market in three months and YTD.
• Near-term DPU visibility remains low, but even after factoring in our cuts, valuations are undemanding at 6.5% FY21 dividend yield and 0.9x P/B.
• CapitaLand Mall Trust's balance sheet meanwhile is sound with low 33.3% leverage, 4.6x interest cover and SGD2.9-4.4b in debt headroom for deals.
• Maintain BUY with lower DDM-based SGD2.40 Target Price (COE of 6.4% and long-term growth of 1.5%).

Lower Occupancies, Rental Reversion at +1.6%

• CapitaLand Mall Trust's 1Q20 revenue and NPI rose 6.0% y-o-y and 5.9% y-o-y, helped by the opening of Funan in Jun 2019, which partially offset the amortisation of its rental rebates to tenants affected by Covid-19. Excluding Funan, revenue would have declined by 2.2% y-o-y.
• Its portfolio occupancy fell q-o-q from 99.3% to 98.5%, with stable performance except for Clarke Quay (100% to 95.9%).
• Rental reversion was at +1.6% (against +0.8% for FY19), but the outlook remains weak with slower shopper traffic and tenant sales, down 9.1% y-o-y and 7.5% y-o-y due to the enforcement of social distancing measures. Supermarkets were a lone bright spot, with sales up 13.1% y-o-y.

Eyeing a Weaker 2Q, Slower FY20-21E Growth

• Almost all CapitaLand Mall Trust's retail tenants are expected to receive 100% of rent rebates for Apr and May from its SGD114m relief package (which also includes a pass-through of the government’s tax rebates), while security deposits (3-5 months) would have been drawn down to offset Mar rentals.
• We see additional support for its tenants after the ‘circuit breaker’ ends, and possibly a restructuring of leases; management is open to receiving higher GTO rent (currently 6-7%) and rental instalment plans.
• We expect its suburban malls to be more resilient in terms of both occupancy and rental reversion in 2H; recovery of its downtown assets is challenged by absence of tourists.
• We estimate an added budget to support selected tenants (or a month’s rent) could lower FY20E DPU further by 7%.

Source: Maybank Kim Eng Research - 3 May 2020