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Four Facts about CapitaMall Trust You Need To Know

One of super investor Peter Lynch’s famous investing maxims is to “buy what you know.” In essence, investors could look toward their daily activities and spending habits for clues on potential investing opportunities.

For Singaporeans, it’s not a secret that we love shopping. Because of that, it would be very easy to see CapitaMall Trust’s (SGX: C38U) stable of Singapore-based retail malls in action. That might just prompt would-be investors to take an interest in the trust after doing some shopping. But, just liking the trust’s malls like West Gate or Raffles City Singapore isn’t enough – there’s still a real need to dig into the fundamentals underlying the share.

In light of that, here’re four important facts about CapitaMall Trust’s business, gleaned from the recent J.P. Morgan Asia Pacific Real Estate Conference 2014 presentation which investors should know:

1. The trust’s assets

CapitaMall Trust is a real estate investment trust that’s managed by retail mall owner and developer CapitaMalls Asia (SGX: JS8). Both shares are in turn part of the sprawling real estate outfit CapitaLand (SGX: C31).

The core of a REIT’s business deals with acquiring and owning properties and collecting rent from them. Because of that, knowledge of what a REIT owns is important. The table below showcases the different properties in the REIT’s portfolio in addition to changes in their value.

Property

Value (31 Dec 2013)

Value (30 Jun 2013)

% Change

Tampines Mall

S$852 million

S$831 million

2.5%

Junction 8

S$636 million

S$622 million

2.3%

Funan Digitalife Mall

S$358 million

S$357 million

0.3%

IMM Building

S$632 million

S$624 million

1.3%

Plaza Singapura

S$1.168 billion

S$1.129 billion

3.5%

Bugis Junction

S$901 million

S$881 million

2.3%

JCube

S$360 million

S$360 million

0.0%

Lot One Shoppers’ Mall

S$485 million

S$483 million

0.4%

Bukit Panjang Plaza

S$274 million

S$272 million

0.7%

The Atrium@Orchard

S$722 million

S$721 million

0.1%

Clarke Quay

S$347 million

S$336 million

3.3%

Bugis+

S$330 million

S$327 million

0.9%

Sembawang Shopping Centre & Rivervale Mall

S$211 million

S$205 million

2.9%

Raffles City Singapore

S$1.207 billion

S$1.177 billion

2.5%

Westgate*

S$316 million

Total

S$8.799 billion

S$8.325 billion

5.7%

*Westgate’s value prior to 31 Dec 2013 came only from the plot of land it was situated on.

Source: CapitaMall Trust’s presentation

2. CapitaMall Trust’s operational highlights

Since CapitaMall Trust deals with retail malls, statistics like shopper traffic and tenants’ sales can impact the performance of the REIT. With shopper traffic, after dropping 1.4% in 2012, Singaporeans are out shopping in force again with a 3.1% increase in 2013. As for tenants’ sales (measured by sales per square foot per month), it has grown in three consecutive years in 2011, 2012, and 2013 by 6.3%, 1.6%, and 2.5% respectively.

Elsewhere, CapitaMall Trust’s occupancy cost for its tenants – calculated by dividing gross rental with tenants’ sales – remains manageable at 15.8% for 2013 despite recent discussions in Singapore regarding rental costs squeezing tenants in general.

Next, we have CapitaMall Trust’s rental reversion trend (adjustment of rents to suit prevailing market conditions) and portfolio occupancy rates to consider.

It’s great to see a REIT be able to raise rents regularly as that would translate into more income for unit-holders assuming costs are kept under control. But, if rental increases are driving away tenants – which would show up in occupancy rates – that would not be healthy either. As such, it’s a plus for investors to see positive rental reversions tag along with very high occupancy rates. With CapitaMall Trust, rental reversions were 6.3% in 2013 while occupancy rates actually ticked up slightly from 98.2% in 2012 to 98.5% in 2013.

3. The REIT’s balance sheet

CapitaMall Trust, like any other REIT, has a balance sheet that carries a significant amount of debt. But that’s just the nature of REITs – they borrow money at lower rates of interest to purchase real estate investments that can give higher rates of returns.

In any case, when debt’s high, it’s important to note the debt-maturity profile of the share; well-laddered maturities pose lesser refinancing risks when the need arises. In CapitaMall Trust’s case, its balance sheet is well-laddered, as seen from the table below.

Year

Amount of borrowings due (S$, million)

2014

500.0

2015

799.5

2016

648.8

2017

250.0

2018

505.2

2019

157.6

2020

226.0

2021

412.0

2022

190.1

2023

140.0

2024

150.0

Source: CapitaMall Trust’s presentation

Besides its debt-maturity profile, a REIT’s interest coverage ratio (a measurement of how easy a trust can pay the interest expenses of its debt – the higher the better) could be worth noting too. And interestingly, we’re seeing CapitaMall Trust’s interest coverage ratio increase from 3.3 in 2011 to 4.2 in 2013.

4. Future plans for the REIT

To drive returns going forward, CapitaMall Trust would be sprucing up a number of its properties in the current year. Tampines Mall and Bugis Junction’s asset enhancement works have already started in the first quarter of 2014. Meanwhile, the REIT’s management is exploring plans to allow IMM Building to house even more stores.

The REIT might also be selling Westgate Tower, the commercial building that’s adjacent to Westgate; CapitaMall Trust has already granted an option to a consortium of buyers to buy the property.

In addition, the REIT would also have to renew 696 leases in the year and investors could keep a lookout on the rental reversion trend of the REIT along with its occupancy rates to have a rough feel for the health of the REIT’s assets.

Lastly, CapitaMall Trust’s exploring greenfield development projects and also opportunistically looking for acquisition opportunities.

Foolish Bottom Line

It’s important to understand the fundamentals of any share we might be interested to invest in. As such, good sources of information like presentation materials prepared by a company could be very important for investors. It’ll pay to at least browse through them from time to time.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.