Monday, September 23, 2013

Five Facts CapitaMall Trust’s Investors Need To Know

Five Facts CapitaMall Trust’s Investors Need To Know
By Ser Jing Chong - September 17, 2013

CapitaMall Trust (SGX: C38U), a subsidiary of shopping mall developer and owner CapitaMalls Asia (SGX: JS8), is a real estate investment trust (REIT) that specialises in owning retail malls in Singapore.

It is part of the Straits Times Index (SGX: ^STI) and is the only REIT within the index’s 30 components. In addition, it also holds the distinction of being Singapore’s largest REIT by both asset size and market capitalisation (as of 11 Sep 2013).

The REIT recently released presentation slides it had prepared for the USA Non-Deal Roadshow and here are some of the important facts investors need to know:

1) CapitaMall Trust’s portfolio

Investors in REITs are in effect, part-owners of the properties that the REIT owns. The properties are what make a REIT’s units’ valuable due to their ability to generate cash flow. Because of that, it’s important for investors to know what exactly is owned by a REIT.

Here’s a snapshot of what CapitaMall Trust owns (data as of 30 June 2013):
PropertyValuation in S$ ’m
Raffles City (40% interest)1177
Plaza Singapura1129
Bugis Junction881
Tampines Mall831
The Atrium @ Ochard721
IMM Building624
Junction 8622
Lot One Shoppers’ Mall483
Funan Digital Life357
Clarke Quay336
Bukit Panjang Plaza272
“Others’” is comprised of Sembawang Shopping Centre and Rivervale Mall
Source: CapitaMall Trust’s USA Non-Deal Roadshow Presentation

There’s another property located in Jurong called Westgate that’s currently under development. The plot of land where Westgate is situated at, of which CapitaMall Trust has a 30% ownership stake, is worth S$291m to the REIT.

Westgate is a joint venture between CapitaMall Trust (30% interest), CapitaMalls Asia (50% interest), and CapitaLand (SGX: C31) (20% interest), and is slated for an opening by end 2013. It is located at Jurong and is just a 3 min drive away from both IMM Building and JCube.

2) CapitaMall Trust’s debt profile

REITs are usually highly levered entities and CapitaMall Trust is no exception. As of 30 June 2013, it has a total debt load of S$3.44b and cash on hand of ‘only’ S$788m. Larger debt loads does not automatically mean an investment is not worthy of our dollars, but it does entail larger financial risks for investors.

REITs are slightly different from other companies in that they are generally unable to conserve too much of their cash flows generated by their operations in order to pay down debt that’s coming due. So, they often have to rely on raising capital from investors to handle loans that are coming due or refinance old debt with new ones.

If a REIT – or any heavily indebted company for the matter – has a very large swathe of debt coming due in a very narrow span of time, it’s exposed to even greater risk in the event that credit and capital markets shut down, as the former did during the Great Financial Crisis of 2007/2009.

Because of that, investors have to keep an eye on the debt-maturity profile of their investments.

This is how CapitaMall Trust’s debt-maturity profile looks like:

5 facts capitamall trust chart 1

5 facts capitamall trust chart 1
Source: CapitaMall Trust’s USA Non-Deal Roadshow Presentation

The chart above shows the maturity dates of CapitaMall Trust’s loans to be somewhat evenly spaced out, so that’s a good thing for its investors.

3) Rental rates for Prime Shopping Districts as well as Suburban areas have been very resilient

The presentation slides prepared by CapitaMall Trust cited data from Jones Lang LaSelle and DTZ Research showing that retail rental rates have been remarkably resilient in Singapore for close to 20 years since the second quarter of 1993.

Despite wildly gyrating Gross Domestic Product growth rates here, retail rents – in terms of S$ per-square-foot per-month – for the Orchard area has stayed within a tight band of around 25 to 40. Meanwhile, suburban areas have seen rental rates exhibiting a steady upward trend, growing from around 16 to its current level of around 24.

4) Historical growth exhibited by CapitaMall Trust

The two charts below showcase the growth of the REIT’s assets, revenue and income:

5 facts capitamall trust chart 2

5 facts capitamall trust chart 2
Source: CapitaMall Trust’s USA Non-Deal Roadshow Presentation
5 facts capitamall trust chart 3
Source: CapitaMall Trust’s USA Non-Deal Roadshow Presentation

5) Healthy Occupancy Cost for CapitaMall Trust’s tenants

CapitaMall Trust derives its income from the rent that its tenants pay. For individuals who are paying rents, you’ll know how debilitating it is to your finances if your rents make up too high a percentage of your personal income.

Similarly, tenants will face a tough time if their rents make up a significant portion of their revenue. Because of that, it pays to periodically check up on occupancy costs – the ratio of gross rental to tenant sales – for the tenants to ensure they’re not overstretched.

CapitaMall Trust’s occupancy costs for 2011 and 2012 are 16% and 16.1% respectively. That’s not too high, and compares favourably with industry peers from around the world. For example, Westfield in Australia and New Zealand has occupancy costs of 19% while CFS Retail Property Trust, also from Australia, has the corresponding figure at 17.1%.

Foolish Bottom Line

Super investor Peter Lynch once wrote that “Behind every stock is a company. Find out what it’s doing.” At the Motley Fool, we simply can’t overstate how important it is for investors to understand the business behind each share they’ve invested in.

Locally-listed shares often release informative reports and presentations that allow investors to know more about them. It pays to at least browse through these materials from time to time.

Publish date:17/09/13

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