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Table of Contents

Company Valuation Report: CapitalMall Trust


CapitalMall Trust (CMT) is the first ever Real Estate Investment Trust (REIT) to be listed on the Singapore Stock Exchange. The company was originated during 2002 and is also the largest Real Estate Investment Trust in Singapore in terms of market capitalization and asset size. As of March, 2013, the company had the total market capitalization of S$7.2 Billion and asset size of S$9.6 Billion.

Table of Contents

Part 1: Company’s Basic Fundamentals and Financial Performance Analysis

1.1 Company Information

CapitalMall Trust (CMT) is the first ever Real Estate Investment Trust (REIT) to be listed on the Singapore Stock Exchange. The company was originated during 2002 and is also the largest Real Estate Investment Trust in Singapore in terms of market capitalization and asset size. As of March, 2013, the company had the total market capitalization of S$7.2 Billion and asset size of S$9.6 Billion.

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The company is a reputable REIT in Singapore and is primarily involved in either owning or investing in high quality income producing real estate properties which are the then used for retail establishments in the country. CMT is managed by an external manager, CapitaMall Trust Management Limited, which is a wholly-owned subsidiary of CapitaMalls Asia Limited.

CMT owns and invests in quality income-producing assets which are used, or predominantly used, for retail purposes primarily in Singapore. As at 31 March 2013, CMT’s portfolio comprised a diverse list of about 2,700 leases with local and international retailers and achieved an average committed occupancy of 98.3%. CMT's portfolio comprises 15 quality retail properties which are strategically located in the suburban areas and downtown core of Singapore - Tampines Mall, Junction 8, Funan DigitaLife Mall, IMM Building, Plaza Singapura, Bugis Junction, Sembawang Shopping Centre, JCube, Raffles City Singapore (40.0% interest), Lot One Shoppers’ Mall, Bukit Panjang Plaza (90 out of 91 strata lots), Rivervale Mall, The Atrium@Orchard, Clarke Quay and Bugis+. During May, 2011, the company also marked its first foray into the Greenfield developments when it took 30 percent stake on the joint venture to develop a prime land parcel at the Jurong Gateway. (CapitalMall Trust, 2014)

The company is assigned with high credit rating of A2 by the prominent rating agency, Moody’s Investor Services. The rating of A2 is the highest rating which has ever been assigned to any REIT in Singapore. The company has a well diversified asset portfolio ranging from leases to retail property ownership. At the time of previous year financial ending of 31st March, 2013, the portfolio of the company comprised of a diverse list of 2700 leases both with international and local retailers. It was also successful in achieving a high average committed occupancy of 98.3%.

1.1.1 Basic Financial Fundamentals

Share Price S$1.955
Shares Volume 13,515,000
Market Capitalization S$6.76 Billion
Debt/Equity S$59.13
Enterprise Value S$9.36 Billion
Revenue S$754.88 Million

Referring to the above figure, we can easily conclude that the major source of income for the company is the rental income and during the year 2013, the Gross Revenue of the company has increased sustainably courtesy increase in occupancy rates and tenant sales of its properties. The company earns maximum share of its revenue from property leased in Food& Beverage Industry and Fashion Industry, followed by Beauty& Health.

1.1.2 Trust Management Team

Below are the key personnel of CapitalMall Trust and their roles in the company and their experiences in the field. Information is gathered through the company’s official website and through its 2013 annual report. All information is up to date.

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Chairman and Independent Non-Executive Director:

Mr. Danny Teoh Long Kay is the chairman and a non-executive director of the company. The designated person holds numerous managerial level positions in other listed companies as Keppel Corporation, DBS Group Holdings etc.

Mr. Long Kay is an Associate Member of Institute of Chartered Accountants in England and Wales and also holds Polytechnic Diploma in Accounting from Newcastle Upon Tyne Polytechnic

Chief Executive Officer and Executive Director:

Mr. Tan Wee Yan is the CEO and executive director of the company. Before joining the company, he has invaluable extensive experience in many national and international companies.

Mr. Yan holds a Bachelors degree in Economics from the prestigious, National University of Singapore

Finance Head:

Mrs. Lei King is serving as finance head in the company and is responsible for the sourcing and management of the funds for CMT. She also provides support function in the areas of treasury, accounting and all finance related matters in line with CMT’s investment strategy and its mall portfolio  management. All of her functions and decisions are focused on increasing the revenue and the investment return for the company.

Before joining CMTML, she has served many local and international companies. She is an MBA from University of South Florida and holds bachelor from the University of Singapore.

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Assistant Vice President, Investor Relations:

Mrs. Audrey Tan is responsible for building cordial relationships and facilitating strategic communications with CMT’s Unit-holders, potential investors and analyst through various communication platforms and as well as providing feedback from the investment community.

Before joining the company, the designated person had 14 years of experience in national and multi-national companies in finance and accounting. She holds a Bachelor of Business in Accountancy and is a CPA in Australia.

Head, Investment & Asset Management:

The investment and asset management team is headed by Mrs. Jacqueline Lee. She is responsible for implementing of CMT’s strategy of creating value or unit-holders through acquisitions asset enhancement and active lease management. The team identifies, evaluates and executes acquisitions, divestments, asset enhancement and other strategic initiatives; prepares the annual business plan, monitors and analyzes performance metrics and trends and works with the property management tem to execute the business plan.

Jacqueline also have an extensive experience in real estate including roles in Corporate Finance and Investment. She started her career as an electrical engineer and holds MBA from University of Australia and Bachelor of Arts from University of Oxford, United Kingdom.

1.1.3 Share Price Performance

The company is listed on the Singapore Stock Exchange, under the ticker sign of ‘C38U.SI’. At the time of writing, the value of the share of the company was S$1.9550. To facilitate the reader to better understand the share performance of the company, we have kep the time period of analysis as short as 10 months, i.e. May, 2013 to March, 2014. We have also provided with a candlestick graph along with a simple stock price graph.

The above stock performance analysis indicates that the company during 2013 have seen both highs and record lows in its stock price. As evident from the graph above, the stock price reached record high peaks during May 2013 with stock price of S$2.29 and during latest February, it recorded its lowest stock price of $1.81, In other words had an investor purchased the stock of the company on 5th May, 2013, till now, he would have earned a return of -13.10%

1.2 Macro-Economy Effects on the Industry

a) Industry Outlook for 2014

Many analyst are still in bearish expectations for the REIT industry for the year 2014. While the year 2013, has seen asset prices of many special hybrid asset classes going both high and low, as of 2014, analyst on the global arena, are concerned with the interest rate environment emanating from the Federal Reserve’s economic stimulus. As per the data issued by National Association of Real Estate Investment Trust(REIT), during 2013, the REIT stocks underperformed the broader equity market. For Instance, in US, while the REIT stock on the total return basis earned only 3.2%, S&P 500 Index managed a handsome return of 32.4%.

Thus, the industry analysts expects that despite of the improvement in consumer activity, they do not expect a good stock movement in REIT industry. For Instance, even when the Federal Reserve decreased its total bond purchase from $75 Billion to %65 Billion in December, 2013 because of pickup in the economic activity and labor market improvement, the benchmark indices in fact became volatile resulting in a soft start to this year.

With this backdrop, the focus again shifted to REITs, which more often than not, tend to perform better when stocks from other industries are down. On a total return basis, the FTSE NAREIT All REITs Index gained 3.4% in January, 2014, compared to the S&P 500’s decline of 3.5%.

Interestingly, a recent good GDP report and improvement in Consumer Confidence Index are expected to provide some short term relief to the REIT Industry. The conference board data shows that the improvement in the Consumer Confidence Index to 80.7 during January, 2014 from 77.5 in December, 2013. This can be considered as an opportune moment for those companies that provide real estate support to the sectors which directly benefit from these activities. However, it is strongly expected that the gradual reduction in the Fed's support could lead to higher interest rates in the long run, thereby hurting the rate-sensitive business of REIT’s .

b) Industry Outlook in Singapore

Just as the global outlook for the industry, most of the local analyst here also expect that the outlook for the Singapore’s Real Estate Investment Trust does not seem to be bright.

These expectations are attributed to the United States Federal Reserve’s tapering of its stimulus programme. As a result, analyst expects that the REIT will not be able to grow courtesy of higher interest rates and ever increasing asset prices. This will limit the opportunities for the REIT’s to swoop on the assets to beef up their portfolios. (, 2014)

Most notably, in a report issued by the Credit Rating Agency, Moody’s Investor Services, even the agency expects that industry outlook during 2014 will be more of a stable nature.  The agency  in its report for Singapore, indicated that during the year 2014, the overall occupancy rates and rental rates will remain stable. This will be supported by a manageable new supply across most segments and proactive lease management to pre-commit rentals in advance of expiry. (Gabriel, 2014)

In a segment wise analysis, Moody expects that in the office segment there will be a tight supply of the new office space, especially in the Core Central Business. This is the same segment where leading REIT companies of Singapore, Capitamall Trust and Keppel REIT drive bulk of their income. Hence, the landlords will be in a favorable position to have a greater pricing power and increased rental rates gradually in 2014. This will be supportive for the REIT companies to atleast have stable earnings in the light of unfavorable global macro-economic effects

In the retail segment also, the occupancy rates and the rental rates are expected to be stable, despite of the significant upcoming supply in the sub-urban areas. Moody expects that the expected high demand of retail properties will also support the stable growth in the REIT industry of Singapore. Further, the strong take-up of upcoming business and science park space -- where Ascendas REIT has the largest exposure -- will keep occupancy and rentals rates broadly stable next year.

However, as for the warehousing segment, Moody expects the segment to be on lower demand side as the spike in the supply of new warehouses will surely pressure the occupancy and the rental rates.

Just as the analyst report, even Moody expects that the funding cost will increase in tandem with the rising interest rate environment. Thus, the agency expects that we could move to a positive outlook for the Singapore REIT industry only when the economy leads the REIT companies to 10% growth. Conversely, we could move to a negative outlook if a deterioration in the operating environment causes a decline in EBITDA and a fall in asset values of 10% or more. (Jacintha Poh, 2014)

1.2.1 Micro Level Effect: Firm based Risk Areas

Apart from the macro level impact on the industry, Capital Mall is also prone to firm based risk that can affect the operations and profitability of the company:

1) Interest Rate Risk:

The company is highly exposed to Interest Rate risk and is more related to interest bearing financial liabilities of the company. The company manages the interest rate risk on ongoing basis and with the primary objective to minimize the net effect of interest rate fluctuations on the total interest payments of the company. As of March, 2013, most of the interest rate risk is managed by the company in the form of borrowing only fixed interest rate financial liabilities or by swapping floating exchange rate into Singapore Dollar Fixed Rates. (CapitalMall Trust, 2013)

2) Credit Risk:

This risk is associated with the failure of the tenants to honor their contractual obligations or by non-payment of lease payments. In order to mitigate this risk to the extent possible, the company has launched a stringent collection policy to ensure that credit risk is minimized. As a part of the collection policy, the company requires all of its tenants to provide with a security deposit in the form of cash or bank guarantee. This security amount will be equal to three months rent of the leased property. As of March, 2013 ,the company has been successful in minimizing its credit risk as the debt turnover of the company improved from 1.2 days(2012) to 1.4 days .

3) Financing Risk:

Since CMT is extensively based on external financing for the purpose of refinancing of existing loans, acquisition of properties and other assets and investment in Greenfield development. Thus, the prevailing health of the debt market, directly affects the CMT and poses financing risk.

Thus, rather than relying on single source of funding or any kind of financing or refinancing requirements, the company has involved itself into various funding programmes. This includes, Retail Bond Programme, Convertible Bond Programme and Banking funding facilities.

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4) Informational, Technology Security Risk:

Informational and technical Risk is concerned with the loss of data, unavailability of the system and damage to the system. To mitigate this kind of risk, the company has established an IT management framework which at regular intervals is reviewed against the IT standard of  ISO/IEC 2000.

5) Operational Risk:

Another form of risk to which the company is significantly exposed to. In order to mitigate this risk, the company has implemented risk management into the day to day operations and activities across all the functions. Some of the risk management measures include the establishment of planning and control system, group wide policies, installing of IT systems and monitoring procedures which are overseen by the executive committee and the board.

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