Is CapitaMall Trust A Good Buy?

CapitaMall Trust is Singapore's oldest and largest retail REIT with a market capitalization of $7.5 billion at its current share price of $2.00. CapitaMall Trust is one of Singapore's most popular blue-chip REITs among dividend investors and it has an impressive track record over the years. During the COVID-19 pandemic, its share price decreased by more than 20% from around $2.50 pre-COVID to $2 currently. It is showing signs of a gradual recovery in Q3 2020 and you may be wondering if it is a good time to load up on this popular retail REIT before it bounces back to its pre-COVID prices. Here are 3 reasons why CapitaMall Trust is a good buy in the long run. 

1. Long Dividend History and High-Quality Dividends

CapitaMall Trust has an 18-year long consistent dividend history and has been paying out dividends consistently without fail to shareholders since 2003. This is an extremely good sign for dividend investors as they can be 'assured' that they would definitely receive dividends from CapitaMall Trust regularly. They do not have to worry that CapitaMall Trust may stop paying them dividends in the future. The average dividend yield for CapitaMall Trust over the past 5 years is 5.7% which is pretty high for a blue-chip retail REIT in Singapore. However, CapitaMall Trust's dividends for 2020 decreased by a significant amount due to the COVID-19 pandemic and circuit breaker measures in Singapore. Their 1H 2020 distributable income decreased by 48.7% year-on-year from $214 million (1H 2019) to $109.7 million (1H 2020) and distribution per unit decreased by 49% year-on-year from 5.8 cents (1H 2019) to 2.96 cents (1H 2020) due to the decreased volume of shoppers at their malls. I feel that the worst is over for CapitaMall Trust as restrictions in Singapore are gradually easing and the malls are slowly gaining back crowds. It will definitely perform much better in 2H 2020 as the COVID-19 pandemic slowly dies down. CapitaMall Trust's high-quality dividends over the years make it an attractive REIT to add to your dividend portfolio in the long run. 

2. Well Diversified Tenant Portfolio and High Occupancy Rate

CapitaMall Trust's portfolio consists of 15 retail properties in Singapore with a total valuation of $10 billion as of 30 June 2020. Some of their more popular properties include Westgate, Junction 8, Tampines Mall, Plaza Singapura, and many more. They have an extremely well-diversified tenant portfolio which consists of more than 3000 leases. They are not overly reliant on any of their properties or tenants for a significant amount of their net property income. This ensures that their source of income is diversified and helps to protect them from difficult economic times such as the current COVID-19 pandemic. Furthermore, they managed to maintain a high tenant occupancy rate of 97.7% as of 30 June 2020. This means that they are maximizing most of their properties to generate the maximum of income possible which would translate to higher distributable income to shareholders. CapitaMall Trust has a 90% rental retention rate for its portfolio from 1 Jan to 30 Jun 2020. CapitaMall Trust's highly diversified tenant portfolio and high occupancy rate are part of the reasons why it has managed to consistently be Singapore's top retail REIT for the last 2 decades. 

 

3. Appropriate Debt Gearing Ratio and Healthy Balance Sheet

CapitaMall Trust's debt gearing ratio as of 30 June 2020 is 34.4% which is well within the appropriate debt gearing ratio (<40%). REITs often use debt as leverage to acquire more properties and expand their portfolio at a faster rate. CapitaMall Trust is well-known for its excellent capital management and it has managed to structure its debt payments such that no large payments are due in any one year. The average term to maturity for its debt is 4.5 years. Moreover, CapitaMall Trust has an extremely healthy balance sheet. Its total assets ($11.3 billion) is almost thrice as large as its total liabilities ($3.9 billion). I personally feel that CapitaMall Trust is unlikely to run into cash flow problems in the future as their management has always ensured that its debt payments are staggered and it has a healthy balance sheet over the years. Their low debt gearing ratio and healthy balance sheet show that CapitaMall Trust is a reliable and stable blue-chip REIT that investors can trust. 

Verdict

In my opinion, CapitaMall Trust is definitely one of the blue-chip retail REITs you have to include in your portfolio in the long run. It has a proven track record over the years and is even strongly sponsored by CapitaLand Limited (CapitaLand Limited is one of Asia's largest real estate developers). A strong sponsor such as CapitaLand Limited can provide CapitaMall Trust with financial support if needed, further boosting investors' confidence in CapitaMall Trust. Additionally, I feel that the worst (1H 2020) is over for retail REITs in Singapore and they are likely to bounce back in 2H 2020. There is already a gradual increase in shopper traffic in retail malls post-circuit-breaker in Singapore with most malls slowly getting more crowded. CapitaMall Trust is trading at a significant discount at its current share price of $1.90-$2.00 and it will definitely appreciate in the future. It may be a good time to consider adding this blue-chip REIT to your portfolio.

Source: CapitaMall Trust First Half 2020 Financial Results

*There has been a proposed merger of CapitaMall Trust with CapitaLand Commercial Trust to create a mega mixed REIT in Singapore by end of the year. I am curious to know fellow investors' thoughts on this matter. What do you guys think of this merger?