CapitaLand Limited (SGX: C31) reported a mixed set of results for its first-quarter 2020 business update.
The diversified real estate conglomerate owns a wide variety of property types ranging from commercial and retail to lodging and business parks.
As of 31 December 2019, CapitaLand held total assets worth S$82.3 billion, of which the bulk (43%) was located in Singapore and China (37%).
The group’s comprehensive business update provides interesting insights as to which real estate sub-types and geographies are more affected by the ongoing pandemic.
Here are three key findings from CapitaLand’s latest business update.
1. Retail performance negatively impacted
Due to strict lockdowns and social distancing regulations imposed by many countries to combat the spread of the virus, retail malls have either had to shut down or are allowed to operate only essential services (such as supermarkets).
It’s no surprise that CapitaLand’s retail properties have experienced sharp drops in shopper traffic, leading to lower retail sales and net property income growth.
Of the four countries (Singapore, Malaysia, China and Japan), only Japanese malls remained fully opened during the quarter.
For February, China was the most adversely affected country as all 15 malls were closed. The good news is that as of 19 April, more than 85% of tenants are back in operation.
Though all malls have since reopened, footfall and sales have yet to hit pre-COVID-19 levels.
Shopper traffic for Chinese malls was down 52% year on year, and CapitaLand also extended rental relief for tenants in Wuhan (100% relief) and other malls (50% relief).
Meanwhile, Singapore shopper traffic was down 10.8% year on year, while Malaysia saw a 20.9% year on year plunge.
Singapore malls are expected to continue to report weak numbers in the second quarter due to the enhanced circuit breaker measures implemented since 7 April.
2. Hotels and lodging adversely affected
Things are not looking good at the hospitality segment as well.
CapitaLand owns and manages around 730 lodging properties spread out over Singapore, Australia, China, Europe and India.
As at the end of the first-quarter 2020, 30 of these properties were closed due to the COVID-19 pandemic, while fee income (generated by the serviced residence and hotel brands within the group) declined 9% year on year.
Though the full impact on RevPAU (revenue per available unit) cannot be ascertained yet, the first quarter 2020’s RevPAU on a group basis has declined by 22% year on year from S$108 to S$84.
China saw the sharpest decline in RevPAU, at minus 29% year on year, while the Gulf Region and India saw a slight uptick in RevPAU of 4% year on year.
As at end-April, 52 properties were closed (22 more than at the end of March), which is expected to pile further pressure on occupancy levels and RevPAU. These, in turn, will negatively impact fee income for operated properties and rental income for owned properties.
One mitigating factor amid all this gloom is the longer length of stay profile for the long-stay lodging business. These properties tend to have higher occupancy rates compared to the ones with shorter stay periods.
Another mitigating factor is domestic travel picking up within China, which should push up occupancy rates, albeit gradually.
3. Fund management continues to shine
CapitaLand’s fund management division continued its strong performance despite the crisis.
The assets under management (AUM) of the group’s seven REITs and business trusts and 25 private equity (PE) funds totalled S$74.8 billion as of 31 March 2020.
Fee income from fund management soared 54.2% year on year to hit S$76.5 million, mainly due to the inclusion of Ascendas Singbridge’s portfolio.
74% of fee income came from REITs and business trusts, while the remainder was from PE funds.
The division targets to reach S$100 billion in AUM by 2023.
Get Smart: Diversity in property portfolio is a boon
Given the unusual circumstances, CapitaLand has reported a creditable performance for the first quarter2020.
Its diversity of properties has allowed it to mitigate some of the adverse impacts from COVID-19, as its business parks, logistics and office properties have remained resilient.
CapitaLand’s balance sheet and liquidity position remain solid, with net debt to total assets at 0.34 and interest coverage ratio at 7.0.
At the same time, net asset value per share rose from S$4.64 at end of 2019 to S$4.74 as of 31 March 2020.
The group has adequate liquidity and resources to tackle the slowdown brought about by the pandemic.
However, we will be watching the numbers for its second quarter closely as the negative impact should be more keenly felt in the current quarter.
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Disclaimer: Royston Yang owns shares in SATS Ltd.
Disclaimer: Royston Yang does not own shares in any of the companies mentioned.