Trusting In Its Growth Strategy

Source : The Straits Times, Jan 10, 2008

More than just a mall owner, CMT leads what is now a $29b market

IF SINGAPORE is known for its trendy, modernised malls, then some of the credit must certainly go to CapitaMall Trust (CMT).

As the owner of 13 downtown and suburban shopping centres, CMT is behind the recent facelifts of malls such as Raffles City and Bugis Junction.

It has spent more than $62 million on the first phase of renovations at Raffles City, including the new ‘island podium’ of shops in the centre of the mall where the atrium used to be.

At Bugis Junction, it has shuffled some shops and added new brands in a $31 million makeover.

But CMT, which collects rental income from its mall tenants and distributes that to unitholders, is more than just a mall owner.

It was also the first - and remains the biggest - real estate investment trust (Reit) in Singapore, having pioneered the development of what is now a $29 billion market with 18 listed Reits.

Created by property giant CapitaLand in 2002 with just three malls in its portfolio, CMT has since grown to have a market capitalisation of almost $6 billion as at October last year.

Its initial public offering was five times subscribed despite being priced at the top end of an expected range, at 96 cents.

Over the last few months, CMT units have been hovering between $3.10 and $3.50, after hitting an all-time high of $4.32 in May last year. They ended down one cent at $3.90 yesterday.

‘If you look at CMT’s performance for the whole of last year, it went up by more than 23 per cent in terms of total return, which is the rise in share price, plus distribution,’ said chief executive Pua Seck Guan.

He said CMT’s unit price rose by about 19 per cent in the last year, while distribution went up 4 per cent. Market capitalisation grew 27 per cent.

‘Some Reits have been in the market for a long time, but they are actually giving a negative total return,’ Mr Pua added.

CMT’s strategy is simple: It is ‘not only providing sustainability of the distributable income, but also creating growth’.

This comes from three areas: raising rental income, enhancing existing malls and buying more properties , explained Mr Pua.

Within the portfolio, ‘we have a good four to five years’ growth organically in terms of asset enhancement’, he said.

This year, CMT will focus on Sembawang Shopping Centre, Jurong Entertainment Centre and the next phases of enhancement works at Bugis Junction and Raffles City.

Already, the initial renovations are paying off. The number of shoppers at Bugis Junction rose by 13 per cent last month from a year ago, while that at Raffles City rose by 8 per cent.

As for acquisitions, CMT plans to have $8 billion of assets by 2010, which is ‘very achievable’, given that Clarke Quay, one-north and Ion Orchard are already in the pipeline.

‘Also, we have a pretty strong balance sheet. Our gearing is only 34 per cent, and we have long-term debt locked in, so we are in a good position to make acquisitions,’ Mr Pua said.

He added: ‘In this volatile market, I think there will be more opportunities’.

JPMorgan is overweight on the trust, setting its target price at $4.

The investment bank said CMT is enhancing several malls, and its incremental returns should step up growth in the distribution per unit.

The bank added that the Reit is able to pass through inflationary pressures due to its largely fixed cost of debt and its power to ‘raise rents through asset enhancement and active leasing initiatives’.