Tuesday, January 29, 2019

My Capitamall Trust Ideas

It has been a bullish market so far where there has not been much buying opportunities in my opinion. SIA is the nearest to its 52-week low at 9.64.


Even so, I am quite amazed at the bullish streak so far. Capitamall Trust is now trading at 2.4, a 52-week high and a whopping 38 cents premium over its NAV of 2.02. It is on my radar but I will be waiting to drop back. A 52-week high is definitely not the best time to go in but still, it will be good for me to document my rough analysis here.

So a quick glance here tells us that the DPU has increased from last year, which is a pretty good sign with all the rejuvenation and asset enhancement works in FY18, which we can superficially infer that there is some correlation. Dividend yield is 5.22% at the time of the report, and probably lower now when Capitamall Trust is trading higher now.

Source: Capitamall Trust Full Year 2018 Financial Results

What I also like here is the general increase of distribution income (DI) over its 2003 inception with a 13.1% CAGR. But a observation I would like to point out here: we can see that the rate of growth of DI was generally much higher during the 2003-2008 periods where DI increased by roughly 20-30% yearly as opposed to recent periods where increase year to year was slightly less than 10%. This may suggest a slowdown as we are approaching a saturated market in Singapore where future growth might be inhibited.
Source: Capitamall Trust Full Year 2018 Financial Results

At an individual property basis, net property income is generally increasing by 3.2%, where we can see that redevelopment and selling of Sembawang Shopping Centre did not adversely affect the whole portfolio.

Source: Capitamall Trust Full Year 2018 Financial Results


Other important information include a gearing of 34.2%, interest coverage of 5.2 and a 3.1% average cost of debt.

Lastly about the debt undertaken by the reit: 

Source: Capitamall Trust Full Year 2018 Financial Results

We can see here that the reit has averagely S$400-500 million worth of debt from 2019 to 2024, which accounts to a rough gauge of S$12.4-15.5 million of interest coverage assuming a 3.1% cost of debt. This is still pretty manageable by the reit for this period if they can maintain their net profit.

Talking from a macro point of view now: Capitamall Trust is easier for me to evaluate as it is local and in Singapore. Although the threat of e-commerce is still there, it is not as prominent as in other countries like China. Consumers still like the brick and mortar feel where they can enjoy the love of shopping. I am also inclined to believe that the shopping malls here cater to families who just want to enjoy a lovely weekend night out, so e-commerce should not too much of a threat here.

However, if the slowdown from China persists and there is a macro recession, Capitamall Trust may not be spared too. Nevertheless, it should be less affected by the other reits who derive overseas income so it is a good bet if we are banking on the Singapore consumer industry. 

2.4 is too expensive for me and I will be looking at a price of 2 which represents a comfortable margin of safety for me. Once again, the only cost I am going to incur here is opportunity cost but I will like it over an unrealized loss so we will see how it goes with the Singapore Budget 2019 coming next week. Cheers!

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