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CapitaMall Trust’s Earnings: Falling Shopper Traffic Can’t Ding Growth

On Friday morning, CapitaMall Trust (SGX: C38U) released its financial results for the 12 months ended 31 December 2014 (FY2014).

CapitaMall Trust, a real estate investment trust which focuses on owning retail malls in Singapore, happens to be sponsored and managed by CapitaLand Limited (SGX: C31). Both shares are also constituents of the Straits Times Index (SGX: ^STI).

With these as a backdrop, let’s dig into the trust’s latest earnings.

Financial highlights

For FY2014, gross revenue increased 3.3% year-on-year to S$658.9 million mainly on the back of higher rental achieved on new and renewed leases and staggered rental. Consequently, net property income rose from S$438.7 million in FY2013 to S$448.4 million.

Distribution per unit (DPU) increased by 5.6% from 10.27 Singapore cents a year ago to 10.84 Singapore cents. Mr Danny Teoh, Chairman of the Manager of the trust, explains the good showing:

“Distribution per unit to unitholders for full year 2014 increased 5.6% to 10.84 cents, underpinned by our portfolio of mainly necessity shopping malls and low unemployment in Singapore. As our malls are located near transportation hubs and large population catchment areas, they enjoy a high level of shopper traffic and are therefore well-positioned to sustain their performances through economic cycles.”

As of 31 December 2014, CapitaMall Trust had a gearing ratio of 33.8%. This is a nice improvement from the figure of 35.3% seen exactly a year ago.

Other aspects of CapitaMall Trust’s balance sheet also showed signs of improvement. For instance, the REIT’s interest coverage had gone up from 4.2 a year ago to 4.5. Unencumbered assets as a percentage of total assets also increased from 83.7% to 100.0%.

There’s one area to watch though, and that’s the REIT’s average cost of debt; the figure has inched up slightly from 3.4% as at 31 December 2013 to 3.5%. Capitamall Trust has a well-distributed debt maturity profile, but investors should still keep an eye on changes to the REIT’s interest expenses as it refinances its borrowings each year. Higher interest payments in the future has the potential to ding the REIT’s bottom-line.

Operational highlights

On the operational front, for the whole of 2014, there were 490 new leases or renewals achieved with a positive rental reversion of 6.1%. It’s always nice to see a mall’s tenants be willing to pay up higher rents.

However, shopper traffic went down by 0.9% year-on-year while tennats’ sales per square foot per month dipped by 1.9%. These may be probably due to the masses wanting to do more online shopping at the comfort of their homes.

Keeping in mind that the health of CapitaMall Trust’s assets would ultimately depend on the health of the business of its tenants, investors may want to observe if a prolonged trend of falling traffic and tenants sales would develop.

Meanwhile, FY2014’s portfolio occupancy of 98.8% was slightly better than FY2013’s’s 98.5%.

Mr Wilson Tan, Chief Executive Officer of the Manager of CapitaMall Trust, commented on the REIT’s performance in the fourth quarter of FY2014 and also gave some insights on the REIT’s plans to drive growth:

For the quarter under review, we continued to reinvent and make our malls relevant. Bukit Panjang Plaza completed the food and beverage (F&B) block and Level 2 opened with additional dining options, including popular choices such as Suki-ya, Eighteen Chefs and Siam Kitchen. In addition, we have created additional space in Sembawang Shopping Centre for a childcare centre.

Reconfiguration works at Block A in Clarke Quay are also underway to introduce new F&B and entertainment concepts, as we continue to reinforce Clarke Quay’s attractiveness as a vibrant place to visit. Our ongoing asset enhancement works for Bukit Panjang Plaza, Tampines Mall and IMM Building are progressing smoothly.”

AEIs (asset enhancement initiatives) usually help to increase the attractiveness of a property. Theoretically, tenants would in turn be willing to pay more in terms of rentals as compared to a non-spruced up mall, thus boosting DPU for unitholders.

CapitaMall Trust last changed hands at S$2.25 per unit on Friday. This translates to a distribution yield of 4.8% (based on the DPU of 10.84 cents for FY2014) and a book value of 1.2, taking into account the REIT’s latest net asset value per unit of S$1.81.

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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 contributor Sudhan P doesn’t own shares in any companies mentioned.