CMMT sees rental pressure remaining in near term

This article first appeared in The Edge Financial Daily, on January 25, 2017.

KUALA LUMPUR: The downward pressure on rental in shopping malls will remain in the near term as more shopping space comes into the market, according to Low Peck Chen (pic), the chief executive officer (CEO) of Capitaland Malaysia Mall REIT Management Sdn Bhd (CMRM), the manager of Capitaland Malaysia Mall Trust (CMMT).

“Near-term rental pressures will continue and it is not just for CMMT. It is an industry-wide concern and we are fully anticipating it,” Low told the media during the financial results briefing yesterday.

The shopping mall trust declared a distribution per unit (DPU) of 2.1 sen for the fourth quarter ended Dec 31, 2016 (4QFY16), bringing the total DPU for FY16 to 8.43 sen, down slightly from 8.6 sen a year ago. Based on its closing price of RM1.66 yesterday, the DPU yield for CMMT is about 5.08%.

“The lower DPU in FY16 was mainly due to lower contribution from Sungei Wang Plaza, higher finance cost and the effects of the enlarged unit holding base following the private placement to fund the acquisition of Tropicana City Mall and Tropicana City Office Tower,” Low shared.

In view of the cautious outlook, Low shared that CMMT will look to maintain a stable net property income (NPI) in FY17 and a sustainable DPU.

CMMT’s NPI for 4QFY16 was almost flat at RM60.4 million from RM60.6 million in the previous corresponding quarter.

Its quarterly revenue was at RM93.5 million from RM93.3 million, mainly attributed to better performance from Gurney Plaza on the back of higher rental rates achieved from new and renewed leases.

For FY16, CMMT saw its NPI grow by 7.1% year-on-year, driven by full contribution from Tropicana City Mall and Tropicana City Office Tower as well as higher rental income from Gurney Plaza and East Coast Mall.

She shared that the management expects to maintain a sustainable NPI level despite anticipating the consumer and business sentiment to remain cautious in 2017.

CMMT is cutting its capital expenditure (capex) budget by 40% to RM30 million in FY17 compared with RM50 million utilised in FY16, mainly because expanding lettable shopping space is not its priority for now.

The capex will include the regular capex that will be allocated to each of the malls under its portfolio as well as for asset enhancements.

Low told The Edge Financial Daily that the budgeted capex is generally planned in advance especially for those related to asset enhancements.

For 2017, the asset enhancement will focus on Gurney Plaza and Tropicana City Mall.

“The capex will vary from time to time. It doesn’t mean that every year we have to catch up or even surpass the previous year. For 2017, it’s quite different from previous years. The result of asset enhancement no doubt is to add value but we do not focus much on [the] creation of huge net lettable area supply.

“What’s more important is to introduce new tenants, [a] refreshed tenant mix and to improve circulations,” Low said.