• 90% of CapitaLand Mall Trust's tenants allowed to resume operations as early as the first week of July.
• Suburban retail malls likely lead retail recovery.
• We estimate that 52% of CapitaLand Mall Trust’s revenue originate from dominant malls.
• Target price pegged to 1.0x P/BV.

Upgrade to CapitaLand Mall Trust to BUY; Target Price Revised to S$2.15

• We upgrade our rating to BUY on CapitaLand Mall Trust (SGX:C38U) with a revised target price of S$2.15 as retail tenants will be given the green light to resume operations as early as the first week of July.
• CapitaLand Mall Trust is currently trading at a P/NAV of 0.9x, at -2 standard deviation (SD) levels. History shows that CapitaLand Mall Trust does not trade below book for long, and the current range represents an attractive risk-to-reward ratio.
• Our new target price implies a price-to-book of 1.0x and a target yield of 4.6% on our FY20 dividend estimates.

Where We Differ: Portfolio Malls Will Not Recover at the Same Pace

• We believe that dominant suburban malls will take the lead in shopper traffic recovery post Circuit Breaker. Dominant retail malls contributed 52% of CapitaLand Mall Trust’s revenue in FY19, of which half was from suburban malls.
• While central retail malls continue to face moderately weak sentiments, the pace of recovery may surprise on the upside with demand from returning workers and pent-up demand from local shoppers. Additional government support and waivers from retail landlords will also help to accelerate the ramp-up process for the tenants most affected by the pandemic.

Vast Majority of Tenants Allowed to Reopen as Early as First Week of July

• Approximately 90% of retail tenants within CapitaLand Mall Trust’s portfolio will be allowed to resume operations within phase 2 of post Circuit Breaker measures from the current 30% of tenants. We estimate that half of these tenants (Food & Beverage and Beauty & Health) are from trade sectors that will see a sharp recovery.

Singapore Retail REITs

• Frasers Centrepoint Trust - DBS Research 2020-05-29: Suburban Giants To Lead Retail Recovery.
• Lendlease Global Commercial REIT - DBS Research 2020-05-06: Steering Steady Amidst The COVID Storm.
• Mapletree Commercial Trust - DBS Research 2020-05-29: The Flower That Blooms In Adversity.
• SPH REIT - DBS Research 2020-05-29: It Pays To Be Prudent
• Starhill Global REIT - DBS Research 2020-05-29: Slowly But Surely.

Source: DBS Research - 29 May 2020