CapitaLand Mall Trust mulls over lease restructuring amid bleak Q2 results

It also says that the merger deal with CCT is still on the table and they are working towards the deadline

Published Wed, Jul 22, 2020 · 09:50 PM

Singapore

CAPITALAND Mall Trust (CMT) is considering flexible lease structures that will allow it to share risks with both existing and new tenants going forward, said Tony Tan, CEO of the Reit's manager.

"The Reit has to be more flexible and take a bit of risk on the landlord side. Hopefully, if the tenant trades well, we can participate in the upside on turnover," he said.

In a webcast on Wednesday to discuss CMT's results, Mr Tan also said that CMT's merger with CapitaLand Commercial Trust (CCT) is still on the table. Both Reits are working towards convening the EGMs and trust scheme meeting before Sept 30 this year, which is also the long-stop date for the deal.

For the three months ended June 30, 2020, CMT's revenue fell 39.8 per cent to S$114.1 million, from S$189.5 million a year earlier, due to lower gross rental income. CMT also waived S$74.1 million in rent.

Net property income (NPI) was down 48.9 per cent to S$68.1 million, from S$133.2 million in the year-ago period. Distributable income declined 27.5 per cent to S$78.1 million. This included the release of S$23.2 million, or a third of the S$69.6 million distributable income retained in Q1. CMT's manager said it has observed gradual resumption of business normalcy, but is holding back some amounts out of caution.

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CMT's distribution per unit (DPU) fell 27.7 per cent to 2.11 Singapore cents, from 2.92 cents a year ago. This will be paid out on Aug 28.

For the half-year period DPU was 2.96 cents, versus 5.8 cents a year ago, and distributable income fell 48.7 per cent to S$109.7 million. Gross revenue fell 16.7 per cent to S$318.4 million, while NPI eased 20.8 per cent to S$216.4 million.

CMT's portfolio (excluding Raffles City Singapore) also saw a 2.5 per cent drop in valuation to S$10.1 billion as at end-June, compared to six months ago, due to changes in assumptions on rent growth and the mark-down of some leases.

Rental reversion was positive at 0.1 per cent, but was lower than the 1.6-per-cent rent reversion in Q1. Portfolio occupancy dipped 1.6 percentage points from end-2019 to 97.7 per cent as at end-June 2020.

Mr Tan said shopper traffic in the six months was down 40.6 per cent year on year. But tenant sales fell 15.4 per cent, mitigated by e-commerce.

He added that 95 per cent of tenants have resumed operations and shopper traffic has recovered to 53 per cent of year-ago levels, with better malls hitting close to 80 per cent.

The worst performing asset has been its shophouses along Clarke Quay, where occupancy has fallen 7.7 percentage points to 92.3 per cent after some tenants moved out. Clubs are still restricted from operating and some are finding ways to reinvent themselves. The manager meanwhile is studying how it can work with the redevelopment of the nearby Liang Court, which its parent CapitaLand is involved in with City Developments, to reposition the area. Mr Tan said CMT may offer further rental reliefs to tenants there, as the need arises.

Across the portfolio, the percentage of tenants pre-terminating their leases contribute less than 2 per cent of CMT's gross revenue. Leases that have to date submitted notices of relief for rental deferrals under the Covid-19 (Temporary Measures) Act 2020 make up less than 1 per cent of net lettable area.

Asked how flexible lease restructuring will be done, Mr Tan said fixed rents could come down, or leases could be structured such that rentals are based purely on gross turnover in the first year, and later on with a fixed rent tagged to turnover in subsequent years. This would only apply to new-to-market tenants and those embarking on the omni-channel route alongside CMT, whose turnover sales numbers can be captured effectively.

Citi analyst Brandon Lee said CMT's Q2 results reflect a subdued retail environment. He expects a slow recovery through FY2021, with more rebates required in the near-term. He maintains a "neutral" rating on the stock with a target price of S$2.11, but sees the merger with CCT as a key upside catalyst to its unit price.

CapitaLand on Wednesday also announced its first shoppertainment live show in Singapore, titled "CapitaStar Live SG: Flight 24/7", which is a three-day six-hour livestream event that will premiere from July 31 to Aug 2, 2020, 8pm to 10pm daily.

CMT units closed flat at S$2.02.

Amendment note: CMT has clarified that flexible lease restructuring will only apply to new-to-market tenants and those embarking on the omni-channel route alongside CMT. The article has been updated to reflect this.