Malita Investments plc is involved in the local real estate industry. It owns the sites of Malta International Airport and Valletta Cruise Port, in addition to, a temporary emphyteusis over the Parliament building and open air theatre in Valletta. Malita is mainly owned by the Government of Malta (80 per cent ownership), with the remaining 20 per cent free floated on the local stock exchange. The current pandemic is, to some extent, impacting every business. Naturally, some industries, such as travel and hospitality, were hit worse than others. However, the repercussions from this outbreak is being experienced by other industries, including the local real estate industry.
This virus is presenting a number of aspects which might change the ‘normal’ way of life. For instance, following the implementation of various containment measures, could there be a shift to teleworking, thus reducing the demand for office space? With the reduction in tourism, could there be a shift to long-term rentals from short-term lets, resulting in excess supply of vacant property?
Such queries are difficult to answer and this is further complicated by the uncertainty on the duration of the current situation. However, it is essential for investors to understand the fundamentals of a company, which will aid then in arriving at a sound financial decision.
The uncertainty stemming from this outbreak prompted a sell-off in the local equity market as experienced in the past few weeks, with Malita’s share price plummeting to €0.77 from the recent high of €0.94. Since then, the share price has recovered almost all of the losses and is currently trading around €0.90 level. Malita, currently has a low number of tenants which at face value might present a risk, however one must point out that Malita’s tenants have a very low risk of default, as among others these include the Government and Malta International Airport plc. In fact, it is anticipated that the company’s rental stream in 2020 is not going to be negatively impacted by the current COVID-19 situation.
Malita’s performance for financial year 2019 (FY19) continued to improve, with revenue increasing by 0.7 per cent over FY18. Operating profit excluding changes in property fair value movements improved by 5.7 per cent to €7.9 in FY19 (FY18: €7.5m). Malita recognises its main assets as investment property, which under the accounting framework allow the Company to pass fair value adjustments to such assets in the profit and loss statement.
In FY19, the company recognised €34.7 million in upward fair value movements (FY18: €7.7 million). Although this is a non-cash transaction, it strengthens Malita’s ability to distribute dividends, as its equity is boosted by such fair value movements. Despite the current situation due to the pandemic, Malita’s board decided to proceed with the payment of a net dividend per share of €0.01853, which when added to the interim dividend paid in 2019, amounts to a total net dividend per share of €0.027 for FY19 (FY18: €0.023 per share). This translates into a net dividend yield of 3.0 per cent based on the current price of €0.89, as at the time of this writing.
Malita is currently developing the Affordable Housing Project, where in 2017 the company entered into an emphyteutical deed with the Housing Authority for a period of 28 years to acquire 16 property sites across various locations in Malta. Following completion, Malita will lease directly to persons in possession of a certificate from the Housing Authority at arm’s length and commercial rates. The subsidy available to these persons by the Housing Authority will be directly payable to the Company.
Malita confirmed that this project has not been disrupted due to the coronavirus outbreak. The project is progressing within the expected timeframe, except for the delay of circa 100 apartments due to the recent construction halt by the Government following a construction incident. Malita expects to start receiving rental income from FY21, with the whole project now anticipated to be completed by FY23.
Management confirms that the rates receivable from the Affordable Housing Project are contracted and as such, there is limited downside risk attached to the project which might arise from a possible downturn in the real estate industry in Malta.
This, in connection with the other points discussed above, confirms our view that Malita is a low risk investment with stable revenue streams and an attractive dividend yield. Consequently, we are of the opinion that those investors who have capitalised on the recent dip in Malita’s share price will be further rewarded in the medium- to long-term.
Disclaimer: This article was issued by Rowen Bonello, research analyst at Calamatta Cuschieri. For more information visit www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.