3 Positives From CapitaLand Mall Trust’s 2017 Results

CapitaLand Mall Trust (SGX: C38U), or CMT for short, holds the distinguished title of being both the first and largest retail real estate investment trust (REIT) in Singapore. It has a portfolio of 16 shopping malls located around Singapore, which include prominent properties such as Tampines Mall, Plaza Singapura and Clark Quay.

I recently wrote an article on three concerning trends that may affect CMT’s business. However, there are also some positives from its latest results that are worth a mention.

Redevelopment of Funan on track

Funan was closed for reconstruction in the middle of 2016. Management targeted the opening of the new mall for the fourth quarter of 2019. However, with the recent good progress of the construction works, they believe that there is a good chance that the project will be completed earlier than scheduled.

There has also been strong retail interest for the new development, and CMT has already secured its first office tenant (WeWork) that will take up 40,000 square feet of office space. CMT’s management has also stated that from the current leases secured for Funan, they expect the property would return more than the 6% than they had initially forecasted.

Prudent debt management and AA credit rating

Over the years, CMT has managed its debt prudently. This has allowed them to maintain an AA credit rating which gives them the edge when negotiating for lower financing costs.

As of 31 December 2017, the REIT had a comfortable gearing ratio of 34.2% and an average cost of debt of 3.2%. Its average debt length of maturity is also very long at 4.9 years. As such, CMT does not have to worry about the recent interest rate hikes as the majority of its debt will only need to be refinanced after a few years.

CMT’s interest coverage ratio of 4.8 times also looks very manageable.

Improving occupancy rate and securing key tenants

Despite the challenging retail climate, CMT has managed to grow its occupancy rate to 98.5% from 97.7%, albeit at slightly lower rental rates. However, management did say that some of the negative rental reversions were due to the REIT’s decision to secure key tenants and repositioning of the tenant mix in some of their malls.

The key tenants, despite being secured at lower rental rates, will hopefully increase footfall and consequently attract more tenants to the malls.

The Foolish bottom line

There indeed have been some positives in CMT’s recent results. Furthermore, the completion of the redevelopment of Funan and the REIT’s strong credit rating will put it in a good position for cost-effective refinancing of its loans. Hopefully, this article, together with the earlier article I wrote on CMT will give investors a more balanced view on the outlook of the REIT.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended units of CapitaLand Mall Trust. Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned.