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Thursday, September 10, 2020 – 10:25 am
CAPITALAND Mall Trust’s (CMT) improving portfolio metrics and merger benefits have not been discounted, so the Real Estate Investment Trust (Reit) is poised to surprise to the upside, according to DBS Group Research.
In a report on Wednesday after the market closed, DBS reiterated its “buy” call and the S $ 2.40 price target on the counter.
Units of CMT fell S $ 0.01 or 0.5 percent to trade at S $ 1.94 at 10:03 am Thursday.
Analyst Derek Tan wrote that CMT’s proposed merger with CapitaLand Commercial Trust (CCT) will drive further diversification and scale, benefits that have not yet been priced in.
“CMT trades with attractive valuations close to P / NAV (price to net asset value) and an implicit EV / GFA (business value to gross area) of S $ 1,864, a good discount below recent transactions,” he said. on Wednesday.
With forward returns of more than 6 percent, beyond one standard deviation of the Reit mean, the risk-reward ratio is attractive, the analyst added.
Additionally, CMT’s growing performance disparity with its retail peers is “too great to ignore,” according to Tan.
The accountant was trading at a yield premium of 120 basis points (bps) to its retail peers, more than one standard deviation from an average premium spread of 20 bps.
Their share price weakness so far this year, behind the Singapore-listed large-cap Reits (S-Reits) as well as their pure suburban retail peers, is notable and an opportunity for Investors are piling up, DBS said.
Since the beginning of this year, CMT units have lost about 20%, while the top 10 S-Reits by market cap are now, on average, back at early 2020 prices.
“We believe this underperformance is not justified given its diversified portfolio coupled with dominant holdings in the Singapore office and retail submarkets,” Tan wrote.
Over time, DBS expects the combined CCT-CMT entity, CapitaLand Integrated Commercial Trust, to recoup its premium over its peers while restarting its growth engines after the pandemic to deliver higher distributions to shareholders.
While investors have generally focused on suburban shopping centers leading the retail recovery, DBS believes the next catalyst for re-rating will be shopping malls in the central business district.
These centrally located malls will see a spike in operating metrics when office workers return, Tan said.
CMT portfolio metrics will likely maintain a rally, with buyer traffic trending up towards pre-Covid-19 levels, it added.
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