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Citi Research

20 May 2013 │ 7 pages Retail REIT's (GICS) │ Real Estate Investment Trusts (Citi) Asia Pacific │ Singapore

CapitaMall Trust (CMLT.SI)
Alert: NDR Takeaways
 We hosted CMT management on a non-deal roadshow to Hong Kong — Key

 Company Update  Event

takeaways are presented below. Investors were interested in management’s view on current trends in the retail sector (especially in light of the labour crunch) as well as acquisition and asset enhancement opportunities.  6.2% rental reversion in 1Q was a positive surprise — CMT registered 6.2%

rental reversions in 1Q13, which was in-line with the 6% rental reversion achieved in FY12 (FY11: 6.4%). However, mgmt noted that this level of rental reversion could moderate going forward (for 2Q, mgmt also highlighted that April and May tend to be seasonally weaker months for retail). Much of the headwinds could be attributed to the impact of the labour crunch, particularly within the retail and F&B trades, where it has been challenging to hire shop assistants and wait staff. This has then put pressure on retailers hoping to extend their operating hours or expand their operations. Slower population growth could also mean weaker growth in retail. All in, mgmt felt that demand for retail space could moderate going forward. This is because cost pressures on the labour front mean that even if CMT maintains its occupancy costs (currently 16%), retailers’ margins could come under pressure. That said, mgmt felt that CMT was in a good position to mitigate this as 73% of its gross revenue (on 2012 numbers) was attributed to necessity shopping.  AEI opportunities — Investors asked about future scope for asset enhancement

Buy Price (20 May 13) Target price Expected share price return Expected dividend yield Expected total return Market Cap

1 S$2.29 S$2.42 5.7% 4.4% 10.1% S$7,918M US$6,289M

Price Performance (RIC: CMLT.SI, BB: CT SP)

initiatives (AEIs) as the recently announced recovery of space at Bugis Junction (70,000 sqft from BHG, to be converted to specialty shops) seemed to be perceived as relatively minor. Mgmt highlighted that there remains unutilized plot ratio at Funan Centre (for office use, hence it would have to be accompanied by decanting of space) and Tampines Mall, and it continues to study the potential to tap this.  Acquisition opportunities — Mgmt highlighted that third-party acquisitions were

challenging given that cap rate compression in the market has heightened sellers’ pricing expectations. CMT would expect to rely on its sponsor for acquisition growth, with mgmt flagging Star Vista and Bedok Mall (due to open year-end) as potential acquisitions. CMT also has around S$500m headroom to undertake development with its sponsor, and would be open to developing greenfield sites like Westgate (due to open year-end). ION Orchard was talked about less enthusiastically.  Active capital management — Mgmt has been taking advantage of the low bond

Adrian Chua, CFA

yield environment to stretch out its debt maturity profile. Its average debt maturity of 4 years is the longest among the S-REITs under our coverage. Mgmt reiterated that it was comfortable with a gearing ratio of 35-40% (currently 35.2%) and a 3.5-3.6% cost of debt (currently 3.3%). Its ideal debt structure is to have c.S$400m expiring every year, which would be similar to a year’s income available for distribution.

Ivan K Lim, CFA

See Appendix A-1 for Analyst Certification, Important Disclosures and non-US research analyst disclosures. Citi Research is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in...
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