Retail REIT CapitaLand Mall Trust (SGX:C38U) released its second quarter results for FY2020 ended 30 June 2020 this morning before trading hours.

As the period of review (between 01 April and 30 June 2020) encompasses the 2-month circuit breaker period (between 07 April and 01 June 2020) implemented by the Singapore government to contain the spread of Covid-19 in the community, where a huge majority of retail shops were temporarily closed, and with retail rebates handed out by the REIT, as an investor of the retail REIT, I am mentally prepared for a significantly weaker set of second quarter and 1H results (compared to the same period last year.)

In this post, you will find key highlights you need to take note of (as a unitholder), along with my thoughts about the REIT’s latest set of results to share:

Key Financial Results

First, let us take a look at the retail REIT’s key financial results – where you will find a quarter-on-quarter (q-o-q), as well as a year-on-year (y-o-y) comparison:

Q2 FY2019 vs. Q2 FY2020:

Q2 FY2019Q2 FY2020% Variance
Gross Revenue
(S$’mil)
$189.5m$114.1m-39.8%
Property Operating
Expenses (S$’mil)
$56.4m$46.0m-18.4%
Net Property
Income (S$’mil)
$133.2m$68.1m-48.9%
Distributable Income
to Unitholders
(S$’mil)
$107.7m$78.1m-27.5%

As expected, the quarter under review was a weaker one for the retail REIT – with the 39.8% q-o-q decline in its gross revenue due to lower gross rental income arising from rental waivers granted by the REIT to affected tenants (amounting to S$74.1m), lower gross turnover rent, as well as carpark income during the circuit breaker period.

Property operating expenses saw a q-o-q drop of 18.4%, as a result of lower property management fees, lower marketing, staff cost reimbursable, maintenance and utilities expenses.

Consequently, its net property income and distributable income to unitholders fell by 48.9% and 27.5% on a q-o-q basis.

Finally, one thing to note about the REIT’s distributable income to unitholders in Q2 FY2020 – they have released S$23.2m, part of the S$69.6m of taxable income available for distribution to unitholders that was retained in Q1 FY2020.

1H FY2019 vs. 1H FY2020:

1H FY20191H FY2020% Variance
Gross Revenue
(S$’mil)
$382.3m$318.4m-16.7%
Property Operating
Expenses (S$’mil)
$109.0m$102.0m-6.4%
Net Property
Income (S$’mil)
$273.3m$216.4m-20.8%
Distributable Income
to Unitholders
(S$’mil)
$214.0m$109.7m-48.7%

As a result of a weaker set of Q2 results, CapitaLand Mall Trust’s 1H results for FY2020 saw a y-o-y decline.

My Thoughts: The latest set of financial results are largely within my expectations as pure-play retail REITs like CapitaLand Mall Trust is directly impacted by the two-month circuit breaker period.

With Singapore now in Phase 2 of the re-opening, where retail shops can once again resume their operations, and dining-in in F&B outlets once again permissible – albeit with safe distancing measures in place, we should be seeing a better set of third quarter results (although it should continue to be a weaker one compared to the same period one year ago) as there remain some who still prefer to stay at home at this point in time (I’m one of them.)

Portfolio Occupancy Profile (Q1 FY2020 vs. Q2 FY2020)

Moving on, let us take a look at the REIT’s portfolio occupancy profile for the quarter under review (i.e. Q2 FY2020 ended 30 June 2020), and compare against its portfolio occupancy profile in the previous quarter (i.e. Q1 FY2020 ended 31 March 2020), to find out if it has improved or deteriorated:

Q1 FY2020Q2 FY2020
Portfolio Occupancy
(%)
98.5%97.7%
Rental Reversion
(%)
+1.6%+0.1%
Weighted Average Lease
Expiry (by Gross Rental
Income – in Years)
1.6
years
2.0
years

My Thoughts: Is the drop in the retail REIT’s overall portfolio occupancy within my expectations? Yes, as it is inevitable that we see some businesses winding up as a result of the ongoing Covid-19 pandemic.

Rental reversion for the quarter under review was as good as flat. Due to headwinds faced by retail businesses, I expect rental reversions to remain flat, or negative in the remaining quarters of FY2020 ahead.

Debt Profile (Q1 FY2020 vs Q2 FY2020)

In this section, let us take a look at the REIT’s debt profile for the current quarter under review (i.e. Q2 FY2020), and compare against the previous quarter (i.e. Q1 FY2020), to find out if it has improved or deteriorated:

Q1 FY2020Q2 FY2020
Aggregate Leverage
(%)
33.3%34.4%
Interest Coverage
Ratio (%)
4.6x4.3x
Average Term to
Debt Maturity (%)
4.7 years4.5 years
Average Cost of
Debt (%)
3.2%3.1%

My Thoughts: Even though when compared to the previous quarter, its aggregate leverage have edged up, but at 34.4% (in Q2 FY2020), it is still a safe distance away from the 50.0% regulatory level. As such, I am not too concerned about it.

Distribution Per Unit (Q2 FY2019 vs. Q2 FY2020)

Finally, let us take a look at the REIT’s distribution per unit payout to unitholders declared in the quarter under review, compared to the same period last year:

Q2 FY2019Q2 FY2020% Variance
Distribution Per Unit
(S$’cents/unit)
2.92
cents
2.11
cents
-27.7%

The record date for distribution payout of 2.11 cents/unit declared for the quarter under review will be on 30 July 2020, and payout date on 28 August 2020.

My Thoughts: With expectations of a weaker set of results by the retail REIT this time round, I have also expected distribution payouts to be adversely impacted as well.

In Conclusion

As a unitholder of the REIT, the latest set of results are well within my expectations.

Personally, I feel that the worst is beyond us – provided there is no second wave of the spread, and that we should be able to see a better set of results reported in the third and fourth quarter (even though in my opinion, it will still be a weaker one compared to a year ago.)

Related Documents

Disclaimer: At the time of writing, I am a unitholder of CapitaLand Mall Trust.

 

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