The Curious Case of CapitaMall Trust

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CapitaMall Trust (CMT), at a price of $2.29, is moving against the broad market trend. While the STI is fast approaching bear territory, CMT is near its 52-w high of $2.31, it is also near its highest price in the past 5.5 years.
This has piqued my interest to look deeper.
Interesting Price Movement
Looking at CMT’s 4 year chart, the stock shows a rather distinct pattern of range-bound movement.
On hindsight, one can attempt to enter CMT at the low range of this price channel at around $1.85-$1.95, and profit from its rise to a high range of around $2.15 to $2.20. This entails a profit margin of between 10% to 19% with a waiting period of between 1.5 mths to 8 mths.

Opportunities of range trading for CMT in past 4 years. Source: poems chart live

It seems that CMT is behaving like a swing trading stock, ideal for mid term trader holding for months for some good profits. This could even apply to a seasoned income/dividend investor.

Some Background Info of CMT
CMT is arguably the flagship retail REIT in Singapore. It owns major shopping malls that are household names, such as Junction 8, Tampines Mall, Bugis Junction.
Some interesting facts:
  • it owns 40% of Raffles City. Other major owner includes Capita Comm Trust
  • it is the first REIT listed on SGX in Jul 2002, after a failed attempt in 2001
  • it has been the largest REIT for a long time, until (if my memory is correct) the past 1 year when Ascendas REIT surpassed its market cap. Recent price surge has helped it re-capture the largest REIT title
  • it also owns approximately a 13% stake in Capita Retail China Trust

Since IPO, it has enjoyed steady growth in distributable income which increased from $64.9m in 2003 to $395.8 million in 2017. This is a CAGR of 13.8%.
Distribution per Unit (DPU) shows a steady trend in past 5 years from 2013 – 2017: 10.27 (cents), 10.84, 11.25, 11.13, 11.16. Although DPU trend has stagnated past 3 years, it is poised to increase as first three quarters 2018 DPU have improved by 1.8% (Q1),  2.2% (Q2) and 5% (Q3) respectively.

Is Distribution Sustainable

Distributions amount that is consistently below the Net Ops and, in an ideal case, Free Cash Flow, suggest that the distributions are sustainable.
For this, I delve into CMT’s past 10 year record. From the table below, it seems that CMT’s distribution amount has always been below its Net Operating Cash Flow. However, distributions had been higher than Free Cash Flow since 2011.
Source: and CMT annual reports
REITs distribute majority of earnings and depends heavily on financing for its operations. It is crucial to check CMT’s capital management particularly Gearing and Interest Cover Ratio. These provide good indication of distribution sustainability.
Fortunately, CMT has a low Gearing of 31.7% and Interest Cover Ratio of 5.3x based on latest quarterly earnings. Its historical record shows that CMT has been managing its capital prudently in the past 5 years.
Source: CMT Presentation at Morgan Stanley 17th Annual Asia Pacific Summit
Current Valuation
At a price of $2.29, CMT’s distribution yield is 4.98%, based on last twelve months distribution of 11.41c. Personally I don’t find this an attractive yield as I demand a minimum 6% to compensate for the additional risks undertaken.
At 6% yield, assuming the same dividends, CMT has to trade at a market price of $1.90, which is within the low price range for mid-term trading shared earlier.
However, if we project 4th quarter distribution to grow by an un-demanding rate of 3% ie 2.99c (4Q 2018 distribution was 2.90c), this would give 2018 full year distribution of 11.5c. With a yield of 6%, i would need CMT price to be around $1.92 before purchasing its shares.
CMT last attained this price back in May 2013, a good 5.5 years ago. I am definitely not a buyer at this moment, given the uncertainty of equity market being dangerously close to bear territory.
By waiting for $1.92, I am securing a higher 6% yield. There is also a good probability of trading profit by selling at $2.20 to 2.30, recycling my capital for better use. Its historical record shows that CMT has been managing its capital prudently in the past 5 years.
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