15 things I learned from CapitaLand Malaysia Mall Trust’s 2017 AGM

CapitaLand Malaysia Mall Trust (CMMT) is a shopping mall-focused REIT in Malaysia with a portfolio of five shopping malls and one complementary office tower. CMMT listed on Bursa Malaysia on 16 July 2010. If you purchased CMMT at IPO, your total returns would be 111.7%.

Three assets are located in Klang Valley – a majority interest in Sungei Wang Plaza in Kuala Lumpur, The Mines in Seri Kembangan, and Tropicana City Mall and Tropicana City Office Tower in Petaling Jaya. CMMT’s other assets include Gurney Plaza in Penang and East Coast Mall in Kuantan, Pahang. Its portfolio has a total net lettable area of over 3.1 million square feet. As at 31st December 2016, CMMT has a market capitalisation of over RM2.5 billion and its total assets have been independently valued at RM3.9 billion.

CMMT is managed by CapitaLand Malaysia Mall REIT Management Sdn Bhd – a joint venture between CapitaLand Limited, one of Asia’s largest real estate companies and Malaysia Industrial Development Finance Berhad. The trustee for CMMT is MTrustee Berhad (formerly known as AmTrustee Berhad).

This was my third year attending CMMT’s annual general meeting. While I know this is common in Singapore, I was impressed by the CMMT management’s initiative to introduce a new e-voting system for the shareholders to cast their vote. Each shareholder was given a programmed SIM card (with the shareholder’s share information) that was inserted into a handset device. The shareholder just needed to press ‘1’ (for) or ‘2’ (against) to vote during the meeting. It saved a lot of time compared to queuing up to cast our votes using paper or laptops.

The AGM started with the CEO, Ms Low Peck Chen, giving a 20-minute presentation. Here are the key takeaways from her presentation.

  • CMMT’s portfolio occupancy rate remained stable and high at 96.5%. This was a result of active mall management, proactive leasing strategies, and access to CapitaLand’s extensive network of local and international retailers. Of the properties, Gurney Plaza, The Mines, and Tropicana City Mall saw higher occupancy rates.
  • Shopper traffic increased 4.1% year-on-year to 59.9 million. The malls continue to attract a strong following among shoppers and retailers as the management is proactively refreshing their trade mix in tandem with the ever-changing consumer trends.
  • CCMT saw a negative rental reversion of 3.5% for renewals and new leases in 2016. However, the fall was mainly due to Sungei Wang Plaza. Excluding Sungei Wang Plaza, the portfolio would have seen a positive rental reversion of 3.9%.
  • Sungei Wang Plaza’s financial performance was the worst among all five malls. This is because the mall is facing a transitional period due to the on-going Mass Rapid Transit works and the closure of its adjoining Bukit Bintang Plaza entrance. Sungei Wang Plaza may gradually show improvement by the second half of 2017 after the Sungei Buloh-Kajang MRT commences operations. In the meantime, the management has embarked on strategies to reinvigorate Sungei Wang Plaza in an effort to draw new shoppers by adding a toys and hobbies cluster on level 2 and FoodZania on level 3 among other initiatives.
  • CMMT’s net property income (NPI) increased 7.1% to RM242.5 million. The better performance in FY016 was mainly due to the full year contributions from Tropicana City Mall and Tropicana City Office Tower (which was acquired in July 2015) and higher rental income from East Coast Mall and Gurney Plaza.
  • Distribution per unit (DPU) decreased 2.0% to 8.43 sen in 2016. The lower DPU was due to lower NPI contribution from Sungei Wang Plaza, higher finance costs, and the dilutive effects of the private placement carried out to acquire Tropicana City Plaza in 3Q 2016. Nevertheless, higher NPI from both Gurney Plaza and East Coast Mall mitigated the impact.
  • Gearing ratio increased slightly from 31.5% to 32.4%. CMMT’s gearing ratio remains healthy, which provides the REIT with a permissible debt headroom of RM1.4billion for asset enhancement initiatives and/or future acquisitions of properties.
  • Well-spread debt maturity profile till 2019 with an average term to maturity of 6.8 years. The average cost of debt maintained at 4.5% per annum. 72.1% of CMMT’s total borrowings are at fixed interest rates with the rest on floating rates. The management is adopting and maintaining a prudent interest rate profile to limit the adverse impact on the cost of debt in the event of any spike in interest rates.
  • CapitaStar, the multi-store/multi-mall loyalty card programme was extended to three malls (The Mines, Tropicana City, and East Coast mall). The programme now has a network of more than 1,000 participating retailers across all five of CMMT’s malls.
  • The challenging retail environment was further aggravated by the upcoming supply of new shopping malls, particularly in the Klang Valley. However, asset enhancement initiatives continue to be one of CMMT’s growth drivers and CMMT malls should continue to prove resilient through 2017 as they possess solid business fundamentals.

Besides the CEO’s presentation, more importantly, I also learned five valuable insights about CMMT’s management during the AGM:

  1. Transparency. After the CEO finished her presentation and before questions were open to the floor, she revealed the board’s response to five questions posted by Kumpulan Wang Persaraan (KWAP) – a substantial CMMT shareholder that owns approximately 8% of CMMT. The management had no need to reveal KWAP’s questions and we, the shareholders, would have been none the wiser. But the management was willing to share the questions and was transparent on their plans and strategies for CMMT in their answers.
  2. Humility. One of the shareholders mentioned that he read from Focus Malaysia that there were 60 malls located within the Klang Valley vicinity. As such, it has been difficult for all the malls to sustain profitability. He thanked and praised the CMMT board for their commitment and dedication to maintaining CMMT’s profits in 2016 even though it was a challenging year. He then bowed to the management to show his gratitude towards them. Remarkably, the CEO stood up and bowed back to the shareholder. She did not take any credit but she attributed the success to her board members and all CMMT employees who worked hard to contribute to CMMT’s success to date. She also thanked all the shareholders for their continuous support in her and the board of directors.
  3. Innovation. I agreed with the chairman, David Wong Chin Huat, when he quoted that “change is a constant”. According to him, the management always strives to come up with new innovative ideas to attract shoppers and continuously create more value for shareholders. The CEO also highlighted that they are embracing digital marketing and social media and incorporating them into the CapitaStar loyalty programme to attract more millennials. In addition, they have a collaboration with the Malaysian telco, Digi, to attract more people to sign up as CapitaStar cardmembers.
  4. Alignment with shareholders. Through the CEO’s presentation and Q&A, I observed that the management’s objectives aligned closely with the shareholders’ objectives. For example, some shareholders raised concerns about Sungei Wang Plaza’s negative rental reversion and low property valuation. As the mall is strata-titled, they suggested that the management approach shop owners to acquire their units since prices were depressed. The CEO explained that they had the same idea, however, she recently attended an annual meeting with Sungei Wang Plaza shop owners and discovered that they were still satisfied with the current rental rates and unwilling to sell their units.
  5. Receptive. During the AGM, it looked as if the board of directors were receptive and willing to listen to every shareholder who voiced their concerns and their ideas on how to improve CMMT’s performance. For example, two shareholders suggested that CMMT provide free shuttle services between nearby residential areas and LRT stations to The Mines and Tropicana City Mall. These two malls are not strategically located near transport nodes and providing a shuttle service could help increase shopper traffic. The CEO was willing to consider the suggestion and convey the idea to the respective personnel at the two malls for further discussion.

Overall, in my opinion, the shareholders were happy and satisfied with the answers and explanations provided by the CEO and board of directors. I believe that most CMMT shareholders will continue to show their support towards the management and trust that they will strive to deliver another fruitful performance in 2017.

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Mitra Chen is a value investor since 2008. Prior to that, she had over 20 years experience in human resources in the recruitment industry. She strongly believes that everyone can achieve financial independence when they use the right financial methods and tools for their investments.

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