Key Takeaways Capitaland Financial Results 2019

Key Takeaways Capitaland Financial Results 2019 picture

As investors who are learning how and where to invest money in Singapore, it is important to listen to the financial performance of firms in the fiscal year. Such presentations give you a clue on the latest developments and can often be found on the company’s website. However, it can be difficult to sit down for hours straight to listen and distill what management is saying. This is a short overview of what transpired during Capitaland’s presentation for financial year 2019.

Capitaland released its results on the 26 of February 2020. Revenue was up 11.3% year on year and operating PATMI was up 21.2%. Most of this revenue and profit growth came as a result of acquiring Ascendas Sing Bridge, higher rental revenue from malls in Singapore and China as well as lodging properties in the USA.

While the acquisition of Ascendas Singbridge helped to grow revenue, it also weakened Capitaland’s balance sheet. At the point of acquisition, Capitaland’s net debt to equity gearing was at 73%. To the company’s credit, they projected that they can reduce gearing to 64% by 2020-2021 and were able to do it in first quarter of 2020. This was in part due to recycling of some of its assets into its Reits and other off take vehicles.

China

What is perhaps the largest preoccupation when anyone talks about Capitaland is its business in China. Capitaland owns about 12 malls in China and also has a REIT(Capitaland Retail China Trust) which is solely focused on retail in China. With the outbreak of COVID-19 in China, many are concerned about the situation at Wuhan, which is the epicenter of the outbreak as well as other key Chinese Cities.

To date, Capitaland’s management has shared that the 12 malls are still closed but they have provided some relief for tenants by offering rental rebate for the long Chinese New Year Break. Malls in Wuhan received full waiver, which amounts to about 40 mil rmb whereas other Capitaland malls in key cities had about 50% waiver. All in all, Capitaland is looking at about 100 mil rmb in assistance to the tenants of its malls in China.

As for the service residence portfolio in China, management has shared that their business model defers from normal hotels. Given that they are more focussed on long stays rather than short leisure stays, they are less impacted by the drop in tourist arrivals. As such, they still see 70% occupancy for main cities where most businesses are conducted.
 
Looking back, the acquisition of Ascendas Singbridge helped to provide Capitaland with the much needed diversification. Previously Capitaland’s entire Real Estate AUM was 49% in China. With the enlarged entity, Capitaland’s China exposure was reduced to 41%. While the virus is also spreading to other countries such as Italy and South Korea, the enlarged entity has proven to have more resilient earnings, which is a strong positive for the firm.
 
 
Singapore
 
In Singapore, Capitaland has reported a sharp rebound in traffic as shoppers return to the malls after a week’s hiatus. Compared to pre virus, current traffic is about 5% less. However, they do note that those downtown malls are more severely hit. This could be because the downtown malls serve a slightly different shopper profile, with tourist forming a significant portion of the incoming foot traffic.
 
To help their tenants stay resilient amidst a slow down, brought about by the virus, Capitaland announced it will release one month deposit to its retail tenants to offset rental payments for march 2020. This is in addition to the Government property tax rebates of 15% which it will pass in full to its tenants. They are also providing specific assistance to the worst hit malls such as giving half a month rental rebate across the board in jewel for two months.
 

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