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CapitaLand Mall Trust Delivers Higher Distributions For 2018’s Third Quarter

CapitaLand Mall Trust (SGX: C38U) is the first real estate investment trust (REIT) listed in our local stock market. It owns retail malls, and some of the malls in its portfolio include Tampines Mall, Junction 8, and Plaza Singapura.

Before the stock market opened on Thursday (25 October) morning, CapitaLand Mall Trust announced its financial results for the third quarter of 2018. Let’s look at the main aspects of the announcement here.

Financial highlights

Gross revenue for 2018’s third quarter rose 0.7% year-on-year to S$170.5 million while net property income (NPI) grew 1.1% to S$122.7 million.

CapitaLand Mall Trust attributed its higher gross revenue to improved contributions from Junction 8, IMM Building, Plaza Singapura, Bedok Mall, and Tampines Mall. The growth factors were partially offset by the following: (1) JCube and Bukit Panjang suffered from lower occupancy and a decline in rental rates from new and renewed leases; and (2) there was a lower contribution from Sembawang Shopping Centre which was sold in June 2018.

Moving on, the REIT’s distributable income to unitholders increased by 4.9% to S$103.5 million. As a result, distribution per unit (DPU) climbed 5.0% to 2.92 Singapore cents, up from 2.78 Singapore cents a year ago.

On a year-to-date basis (the first nine months of 2018), CapitaLand Mall Trust’s gross revenue, NPI, and DPU increased by 1.4%, 2.8% and 3.0%, respectively.

As of 30 September 2018, CapitaLand Mall Trust’s net asset value per unit was S$2.03, an increase of 4.1% from S$1.95 at the end of September 2017. The REIT’s aggregate leverage also fell to 31.7% from 34.7% a year ago. However, when compared to end-June 2018, CapitaLand Mall Trust’s aggregate leverage had stepped up by 0.2 percentage points from 31.5%. The interest coverage ratio was unchanged sequentially at 5.3, and the average cost of debt was at 3.1% per year.

Operational highlights

For the first nine months of 2018, shopper traffic at CapitaLand Mall Trust’s malls fell by 1.8% year-on-year, but tenants’ sales per square foot improved by 0.5%. (Note: The figures exclude Funan, which was closed in July 2016 for redevelopment, and Sembawang Shopping Centre.)

CapitaLand Mall Trust’s rental reversion rate for its portfolio was 0.6% for the first nine months of 2018. The REIT’s tenant retention rate for the same period was 82.4%.

The REIT ended 2018’s third quarter with a portfolio occupancy rate of 98.5%, higher than the market’s occupancy level of 92.7%.

Looking ahead

Tampines Mall and Westgate are currently undergoing asset enhancement initiatives (AEIs), and the upgrading works are on track to be completed in the fourth quarter of 2018. Westgate is set to have a bigger influence on the REIT’s portfolio. During an extraordinary general meeting held on 25 October 2018, CapitaLand Mall Trust’s unitholders approved the proposed acquisition of the rest of Wesgate that is not owned by the REIT. The acquisition is expected to be completed on 1 November 2018.

As for Funan, Tony Tan, the chief executive of CapitaLand Mall Trust’s manager, shared the following comments in the latest earnings update:

“For our project under development, Funan will open ahead of schedule in 2Q 2019 and start contributing income from the second half of 2019. Including leases under advanced negotiations, the leasing for Funan’s retail and office components has to date reached approximately 70% and 60% respectively.”

Private placement

In a separate announcement from its earnings update, released on the evening of 25 October 2018, CapitaLand Mall Trust revealed that it would be undertaking a private placement of 122.01 million new units of itself to raise gross proceeds of at least S$250 million. The private placement has an upsize option to raise an additional sum of up to S$25.0 million. The private placement unit will have a price between S$2.049 and S$2.097 each; for perspective, CapitaLand Mall Trust has a unit price of S$2.17 currently, and a market capitalisation of S$7.70 billion.

The REIT intends to use S$245.6 million of the proceeds from the private placement to partially pay for the aforementioned acquisition of Westgte. The rest of the proceeds are earmarked to pay for the expenses related to the private placement, and for general corporate purposes.

The Foolish takeaway

Despite the soft market conditions, CapitaLand Mall Trust delivered the goods, with higher gross revenue and DPU. I’m excited to see what Funan, Singapore’s first online-and-offline shopping mall, would be like once it opens and how much it starts contributing to the bottom-line. At the unit price of S$2.17, CapitaLand Mall Trust has a price-to-book ratio of 1.07 and a trailing distribution yield of 5.3%.

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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 Sudhan P owns units in CapitaLand Mall Trust.