Some REIT Enthusiasts may have come across a very good youtube video presentation by Wilson Tan, then CEO of Capitaland Mall Trust. While i have also included the video later in the page, there are still many who do not know the difference between Capitaland Mall Trust and Capitaland. Here we will cover the following:
- Brief Introduction of Capitaland Mall Trust
- Explain the key difference between the Trust and Capitaland
- Valuation Techniques to assess attractiveness of CMT
- Find the meaningful pieces of information that we need assess to CMT
CapitaLand Mall Trust (CMT) is a REIT that focuses on retail malls in Singapore. Some of the malls that you may be familiar with include Junction 8, Plaza Singapura and the Funan. CMT is the largest Singapore REIT with a market capitalisation of approximately 9.78 Billion.
It has been given an ‘A2’ Investment Grade rating by Moody’s Investors Services. This is the highest rating that Moody’s has given to a Singapore REIT.
Capitaland Mall Trust’s largest unit holder is Capitaland, which holds a 28.45% in the REIT. 63% of the Units in CMT remains as public float.
Below is a graph with the current and historic stock price of Capitaland Mall Trust.
Difference between CMT and capitaland
Many Singaporeans when looking at a REIT like Capitaland Mall Trust will ask this question. “What is the difference between Capitaland Mall Trust and Capitaland?” After all, Both companies have the word Capitaland in their name. Further, you are more likely to see a retail mall owned by CMT in your day to day life than you are to encounter Capitaland. So what is the difference?
If you look at the trust structure of Capitaland Mall Trust, you will realise that Capitaland is not there. The reason is because, Capitaland is one of CMT’s unitholders. Capitaland owns an approximate 28.45% of CMT’s units, with the majority of the remaining units being left as public float. This means that it is the public who is the majority owner of CMT.
Despite not owning the majority of CMT’s units, Capitaland continues to have management control of Capitaland Mall Trust. This is because Capitaland Mall Trust Management Limited, the manager of CMT, is the wholly owned subsidiary of Capitaland.
Video Introduction by CEO of CMT
Properties under Capitaland Mall Trust
Valuation Techniques to assess attractiveness of CMT
Capitaland Mall Trust is currently trading at SGD 2.68. Given the distribution table as shown below, the distribution yield should be around 4.3%
|Period||Ex Date||Payment Due||Distirbution per unit|
|8 Nov to 31 Dec 2018||30-Jan-19||28-Feb-19||1.56|
|1 Oct to 7 Nov 2018||7-Nov-18||30-Nov-18||1.43|
|1 Jul to 30 Sep 2018||7-Nov-18||30-Nov-18||2.92|
|1 Apr to 30 Jun 2018||26-Jul-18||29-Aug-18||2.81|
|1 Jan to 31 Mar 2018||26-Apr-18||30-May-18||2.78|
Given this information, our next task is to figure out if SGD 2.68 is a reasonable amount to pay for 4.3% dividend yield. One good measuring yardstick is to look at the valuation assumptions that the company made in valuing the investment properties. The valuation assumption includes the capitalisation rate that the reit uses. It will also include the discount and terminal rates that are used in valuing the property.
|Capitalisation Rate||3.75 to 7.00||3.75 to 7.25|
|Discount Rate||6.92 to 7.32||6.98 to 7.75|
|Terminal Yield||4.31 to 6.50||4.47 to 7.14|
First things first: Some definitions
Capitalisation Rate, also know as cap rate is the ratio of Net Operating Income and Market Value. Hence
Terminal yield is also known as terminal cap rate. It is different from cap rate in the sense that both the Net Operating Income and the Terminal cap rate are estimated numbers. These are used to derive the terminal value at which the company will sell the property for.
What is interesting about these numbers is that 4.3% dividend yield is still not the extreme bull case that the lower bound cap rate of 3.75% suggest. However, it is right where CMT thinks terminal yield will be. This seems to suggest that the company is of the view that the properties will yield around 4.3% when they decide to divest it to a third party. However, in the short term, there will still be room for further cap rate compression.
Given that the dividend yield is in the lower bound of CMT’s cap rate and terminal yield range, it is relatively pricey to purchase the CMT units at this level. However, what does it really take for CMT’s Units to go above the current levels.
Some probable events that can bring CMT above current prices
- Further compression in market cap rate (Macro)
- Rent reversion => NOI increase => Share Price increases while Div Yield stays constant.
- Accretive Acquisitions
Further Cap Rate Compression
Is it possible to get further cap rate compression in the retail mall space?