On 12 October 2017, I wrote an article about CapitaLand Mall Trust (CMT)
Why I think CapitaLand Mall Trust is an awesome investment
The price at that time was $2.05 and the expected dividend yield was 5.46%
2.5 years has passed.
30 June 2019, CMT reached a high of $2.74.
And on 22 May 2020, the price is around $1.85. (I wrote this post on 22 May)
I always have a soft spot for REITs. I bought many of them in 2008 when not many people knew much about them, so the yields were really attractive.
One of my favourite REIT is CMT. Simply because, it's all around Singapore. It's everywhere, we all use it. Most likely we will go to a CapitaLand Mall once a week...
I personally think it's probably one of the most "idiot proof" stable investments.
That was 3 months ago...
So now what? How now? Singapore has been on CB for a month or so.
Many shops are closed.
Is CMT a good buy now? What do I feel?
Ok, as usual, I use estimates. Cos... the market is about estimates, there's no one who can predict anything accurately. If it's a good deal, then it's a good deal, if I have to calculate to the cent to determine if it's a good deal, then it's probably not a good deal.
The price of CMT now is $1.85.
If I take the past 4 dividends, I get $0.0994.
Which gives me 5.37% yield.
This is IF CMT can continue to provide the same yield going forward.
Which obviously seems unlikely.
Just by looking at these numbers, I'm already not feeling much love.
Remember, when I wrote the post in 2017, when things in life were pretty average, no COVID, if I paid $2.05, I would get 5.46% dividend yield.
BUT YET...
Now, IF I pay $1.85, I can only get 5.37% yield BUT ONLY IF CMT continues providing a similar dividend rate. Which personally, I feel that CMT will likely drop dividend at least for a few distributions.
During this pandemic, there are only a few scenarios for tenants and landlords.
1. Tenants pay diligently.
2. Tenants go broke and default
- Landlords have a contract and MAY be able to sue
- Even if they have a contract, tenants may have no money to sue
3. They settle somewhere in-between
- CMT could potentially give more time to pay rent
- CMT could give rebates to tenants due to poor foot fall in the mall
- Others
So for around 2 months of CB, many shops are closed. How many tenants can continue to pay rent diligently?
Maybe only NTUC and banks.
Most other shops have little to NO REVENUE. So scenario 2 and 3 are most likely.
Even AFTER reopening, many stores, example restaurants, retail outlets, movie theaters will still have low patronage. Restaurants will still have to have social distancing in for their seating.
All these will lead to lower revenues for shops and thus, the tenants will not be able to pay CMT.
There's a good chance that CMT will work out something with the retailers rather than have them go broke and close down.
So let's say, during 2 months of CB and the next 4 months, for a total of 6 mths this year, CMT sees a 10%-20% reduction in total revenue. Could be due to tenants not paying, rebates to tenants, running promotions, tenants closing down, whatever possible thing. Basically for 6 months, their revenue has dropped for 10%-20%
Looking at numbers from CapitaLand Mall webpage and some of my own calculations...
I multiplied them by 4 to obtain the numbers in Column E.
To obtain the "Distributable Income", I used 96% of "Amt Avail for Distribution", which is the ratio used in 2018 and 2019, so I just took a simple proportion.
So Column E is my projected 2020 numbers for a year without COVID.
In Column G, I have reduced the revenue by 5% (10% reduction for 6 mths is 5%).
And for distributable income I scale it down by 96% also.
For Column I, I do the same but reducing revenue by 10% (20% reduction for 6 mths is 10%).
Based on the respective reduced distributable income, I compare it against 2019 numbers and scale the dividends down by the same amount.
So... My projection is...
IF CMT experiences a reduction of revenue or 10% for 6 months, the projected dividend for the year will be $0.0997.
IF CMT experiences a reduction of revenue or 20% for 6 months, the projected dividend for the year will be $0.0891.
If we look at a dividend vs price chart...
IF the dividend really ends up at $0.0997 for 2020, then the yield will be around 5.4%.
IF the dividend ends up at $0.0891 for 2020, then the yield will end up at around 4.8%.
Based on this, it appears that currently the market is pricing around a 5% reduction in revenue for CMT for this year. True or not? Who's to know?
It really depends on whether you believe that this COVID situation will last longer or shorter, and how much loss of revenue CMT will have to suffer.
Furthermore, any new tenants or renewals will probably be at a lower rate as demand for retail space would probably remain low for at least a year until the COVID issue really blows over, IF it ever blows over.
Personally, I think that AT BEST, at the price of $1.85, CapitaLand Mall Trust is just an "OK" buy. It's not a great deal. I don't think it's even a good deal.
All I can say is, most likely, but not confirm, in the long run, CMT will likely recover in terms of price and dividend so buying at $1.85, eventually, in the long run, most likely in a couple of years, it will likely be above this price.
So chances are, won't lose money at this price in a couple of years. Although, there could be other more attractive investments with better returns in the same investment horizon.
I currently don't own any CapitaLand Mall stocks, but I am monitoring it.
Once again...
These thoughts are my own analysis and thinking about CapitaLand Mall Trust, please do not use it as an indication to buy or sell. Please do your own research before making any decisions.
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