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3 Takeaways From CapitaMall Trust’s 9M14 Results
Corporate Digest, Featured | 06 November 2014
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By: Peter Ng
Articles (81) Profile

1.       Nothing New But Just Another Round Of DPU Increase

For the third quarter ended 30 September, CapitaMall Trust (CMT) declared a distributable income of $93.7 million which translates into a distribution per unit (DPU) of $0.0272. On a year-on-year basis since FY10, the trust has constantly paid out higher DPU, registering a compounded annual growth rate of 3.6 percent.

2.       Falling Shopper Traffic And Tenant Sales

As the amount of shopper traffic and tenant sales affect the rental which a shopping mall commands as well as future rental reversions, a decline in these statistics could adversely affect future rental revenue. Operationally, shopper traffic could have dipped 1.5 percent in the nine months of 2014 compared to the same period in 2013. However, a point to note is that, this measurement excludes some data points such as Bugis Junction where certain parts of the shopping mall were closed for asset enhancement initiative. Upon its completion, we could see a rebound in shopper traffic.

Overall tenant sales in 9M14 declined by 3 percent when matched against the corresponding period last year. The weaker sales were largely stemmed from lower consumer spending in telecommunication, information technology and toys. Although the decline could be attributed to the gloomier outlook in the local economy which has subsequently affected retail spending, however, those three segments that led the decline could have formed a causal relationship from the growth in online shopping.

Online retailers who are selling the same products incur significantly lesser overheads as they do not have to fork out rental expenses unlike a brick-and-mortar store. Secondly, they are not required to hire a large pool of workers to operate its business, afterall sales assistants are not required to promote and sell products on the internet, and the operation of an online store is as good as automatic.

3.       6.3% Rental Reversion Registered

CMT recognised a 6.3 percent rental reversion from 417 leases which were either renewed or new leases. The current rental reversion has already come on par to the full year rental reversion of FY13, and investors should see further upside in the trust’s revenue. Furthermore, the number of remaining leases yet to be renewed within CMT’s portfolio stands at 106 (as at 30 September), representing 20 percent of the portfolio. Barring any unforeseen circumstances, CMT is on track to fully renew all its portfolio leases expiring in FY14.

Falling Sales Inadequate To Dissuade Tenants

The earnings stability of the trust is one of its most appreciated strengths, and CMT’s 9M14 results did not detract. While challenges in the general economy and competition from the e-commerce space could continue to erode on tenant sales, however, the positive rental reversions registered by the trust thus far, suggests that the fall in sales is likely to be temporary before retail spending picks up in the coming holiday season.

Backed by a strong interest in investments, Peter's research spans across a range of industries, with his focus placed on companies listed on the SGX.

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CapitaLand Mall Trust  2.670 +0.06 +2.30%   
Business: Co owns and invests in quality income-producing assets which are used, or predominantly used, for retail purposes primarily in Singapore.

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