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CapitaMall Trust’s FY14 Results: 3 Things You Need To Know
Corporate Digest, Featured | 28 January 2015
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By: Peter Ng
Articles (81) Profile

The blue chip of real estate investment trusts, CapitaMall Trust (CMT), reported its FY14 results on the morning of 23 January.

In a nutshell, CMT posted a slight gain of 2.2 percent in net property income accompanied with a 5.6 percent upside in distribution per unit of $0.1084, compared to FY13. Furthermore, the trust’s occupancy rate in terms of retail leases is standing at a four-year high of 98.8 percent as at 31 December 2014.

Apart from the positive news of a higher distribution per unit, there are a few other points to note and pay attention to.

1) Funan And E-commerce

The performance of Funan DigitaLife Mall remained lacklustre on the back of a 1.5 percent rental reversion for FY14, the second lowest within the trust’s entire portfolio.

The shopping mall for technology lovers has been losing its appeal to e-commerce businesses. In conjunction, the same point was noted as chief executive officer, Wilson Tan, noted that E-commerce is an area that is causing a shift in shoppers’ behaviour where shoppers are approaching the internet to make purchases that are not only limited to electronic products.

In addition, he also mentioned that as opposed to competing, it is a more viable solution and alternative for CMT’s operations to be a complement to e-commerce.

An example was quoted where J Avenue which is a new initiative on the second level of JCube that was formed after a round of asset enhancement initiative (AEI) works at the shopping mall. The shopping compound comes with an accompanying e-commerce site that offers shoppers the option to collect their purchases directly from the physical store in JCube.

While such a concept may be relatively new, however, this may not necessarily be a compelling factor for a price-conscious and patient shopper.

A shopper like the above would most likely prefer to shop at the most competitive price, as well as someone who does not mind waiting for his or her product to be delivered, since it is not uncommon or difficult for products to qualify for free shipping anyway.

I certainly do not disagree with the argument of operating a brick-and-mortar store to serve as a complement to e-commerce, although how this strategy can be successfully executed remains to be seen.

2) Renewal Of Leases

CMT renewed a total of 490 retail leases in FY14 at a positive rental reversion of 6.1 percent compared to preceding rates that are typically committed three years ago.

Although the rate of rental reversion in FY14 is a reduction of 20 basis points compared to that of FY13 (6.3 percent), nonetheless, CMT’s rental reversion rate remains stable at above 6 percent, which is somewhere within the average of the past five years.

Source: Company Reports

As the trust progresses into FY15, under its radar, there are 1,012 leases that are due for renewal in the year and out of which, 835 of these leases are retail leases.

Borrowing a forecast that was released by the Singapore government where the country is aiming for a 2 to 4 percent growth in the gross domestic product growth of Singapore, which was released by the Singapore government, the general economic environment appears to be in a neutral state.

The probability of a stable economic climate in FY15 seems plausible as of now and is much to cheer for CMT in terms of sustaining the trend of positive rental reversions.

On the flipside, a weaker economic climate would not bode well for CMT, especially since there are close to a 50 percent increase in retail leases that are due for renewals in FY15 compared to FY14 and occupancy costs are currently at a nine-year high.

3) AEI And Possible Acquisitions

Aside from the renewal of leases that are due, moving forward, CMT seeks to focus on ongoing AEI works and more importantly keep a look out for acquisition opportunities.

These potential acquisitions are not limited to acquiring existing properties from its sponsor, CapitaLand, but also “greenfield” development projects, meaning the entire process of tendering for land space and developing a shopping mall from bare.

While AEI works may not outright be as exciting since the potential yield enhancements are not as material compared to an acquisition of a new property, however, AEI works is an aspect that is just as important to be assessed.

In January 2015, a childcare centre has been opened in Sembawang Shopping Centre. The result was the conversion of a proportion of the shopping mall’s loading and unloading bay into 8,000 square feet of additional space for the childcare care centre.

After all, kids cannot be taken care by computers fortunately, meaning that the operation of a childcare centre is not ready to be substituted by e-commerce for now.

Final Thought

Even though the aforementioned move may not create the same scale of tangible returns compared to a new acquisition, but such moves encompass a crucial strategy with the intent of making the operations of a shopping mall to stay relevant alongside the growth of e-commerce.

In this regard, I believe that CMT recognises the need to innovate and is steering towards the correct direction although more needs to be done.

Barring any unforeseen circumstances, as long as the economic environment remains favourable for the renewal of leases due in 2015, successful execution and completion of the planned AEI works at four shopping malls and potential improvements in Funan, it should be another year for unitholders to pocket even more distributions from the trust.

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.

Please click here for more information about this author.

CapitaLand Mall Trust  2.620 -0.03 -1.13%   
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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