Capitaland Mall Trust (CMT) 3Q16 Review

Management

The recent changes where the management remuneration for the equity based component now will be issued based on CMT Unit instead of CL Shared. This is a positive sign to align with the unitholders interest.

Debt

The average cost of the debt has been lowered from the previous year 3.3% to 3.2% with the average term to maturity is 5.5 years. Current gearing stood at 35.4%

I don’t expect this will going down when everyone is speculating the fed will increase the rate soon.

Lease Expiry

From the recent result, we can see the following property having negative rental revision

Property	Average Percentage to total NPI	Rental Revision	2017 Lease Expiry	2018 Lease Expiry
Westgate	3%	-12%	60.40%	18.10%
Bugis+	3.9%	-7%	17.80%	47.20%
The Atrium@Orchard	6.9%	-6.2%	19.60%	9.4%
Other Asset (Sembawang and JCube)	5%	-5.9%	13.4% and 13.7%	37.5% and 35.8%

Based on some source, the rental was peak in 2014, which mean those rental expired in 2017 and 2018 will might continue to have negative rental revision. We will need to watch out the above properties as it is might to continue to have negative rental revision.

Next to watch out will be Bukit Panjang Plaza where about 40% of the rental will expired in 2018 which where Hillion Residences will be receive TOP in Sep 18, this is likely to put rental pressure. We will see how the management will manage and overcome this.

As for Funan closure, the loss of revenue will be cover by Bedok Mall and Bedok Mall contribute bigger NPI than Funan which can shield the drop from the negative rental revision. Thing to note, Bedok Mall has 73% gross rental income expired in 2017, if management can keep continue to have positive rental revision for Bedok Mall – this is a good one.

For moving forward for the rest of the property, the positive rental revision might be minimum. Based on the historical trends, rental revision has been getting smaller and smaller. Seems we will need to be happy for 1-2% positive rental revision.  Guess what’s go up must go down before thing to start to pick up.

Summary

With the current retail condition and uncertainty in the economy, likely we will see limited growth on CMT due to

1. 2017, 2018 renewal will be for 2014 (peak) and 2015 which is might be negative rental revision for those properties that already have negative rental revision in 2016.
2. Historical trend of rental revision has shown pressure on the rent, the past revision unlikely to happen unless economy, tourist and spending picking up
3. Interest rate hike
4. eCommerce (Alibaba & Amazon)

Potential growth will be new acquisition and when Funan Redevelopment finish in end 2019.

With the current yield about 5.7%, limited growth and risk free rate 4%. I will keep CMT in the watch list and wait for the opportunity to come when it gives me more margin of safety.