Interview with Sharon Lim, CEO of CapitaMalls Malaysia Trust

This interview with CEO of CapitaMalls Malaysia Trust, Sharon Lim Hwee Li would not have materialized if not for the tremendous help by the CapitaMalls Asia Head of Corporate Communications and Marketing, Mr Lim Seng Jin. The properties in CapitaMalls Malaysia Trust are perhaps the ones I could most relate to. One of it being Gurney Plaza, where I do “inspection” every month or so. If you are staying in KL or Kuantan, I believe you are also familiar with the other assets under CMMT portfolio – Sungei Wang Plaza, The Mines and East Coast Mall.

Also, when I first got in touch with Mr Lim Seng Jin, he was candid to correct the common misspelling – it is CapitaMalls, not CapitalMalls. See his first reply below; it speak volumes about CMMT commitment in engaging the investment community & online media pertaining to CMMT’s performance, prospect and business activities.

 

Inside REITMethod.com online educational program, the first of its kind in Malaysia, I strive to add value to members by approaching and interviewing REIT industry experts.

Also read my previous interviews below:

Interview with Axis REIT CEO, Dato’ Stewart LaBrooy

Interview with AmFIRST REIT CEO, Lim Yoon Peng

Interview with Sunway REIT CEO, Dato’ Jeffrey Ng

1.   What are the advantages of a retail assets portfolio, especially for a pure play retail REIT like CMMT – which most retail investors don’t know about?

2.   How does CMMT uniquely position itself among other new players in retail-focused M-REIT sector, such as Pavilion REIT and IGB REIT?

CMMT is the only “pure-play” shopping mall REIT in Malaysia with an income- and geographically-diversified portfolio of four shopping malls: Gurney Plaza in Penang, a majority interest in Sungei Wang Plaza in Kuala Lumpur, The Mines in Selangor and East Coast Mall in Kuantan, Pahang.  The portfolio has a total net lettable area of over 2.4 million square feet (sq ft).  As at 30 September 2012, the total asset size of CMMT is about RM3 billion.

Our portfolio offers investors geographical diversification and income growth as our malls are strategically located in four key urban centres across Malaysia.  In addition, the portfolio also offers income diversification as there is no over-reliance on any single shopping mall or single retailer.  CMMT’s malls are largely focused on necessity shopping, which have proven resilient through economic cycles and should continue to do so.

CMMT also benefits from our strategic relationship with our sponsor CapitaMalls Asia, which owns 35.93% of the units in CMMT.  CapitaMalls Asia is one of the largest listed shopping mall developers, owners and managers in Asia, with 101 malls across 52 cities in Singapore, China, Malaysia, Japan and India.  CapitaMalls Asia’s portfolio of shopping malls has a total property value of about S$30.7 billion (RM76.9 billion) and a total gross floor area of about 92.4 million sq ft.

To strengthen CMMT’s competitiveness in the market place, we continue to leverage on our access to CapitaMalls Asia’s business scale, competencies, and industry-leading retailer network, with more than 10,000 leases across Asia.  We are constantly on the lookout to acquire or develop malls in the growing urban centres in both East and West Malaysia and will announce to the market when appropriate.  We are confident that CMMT is well-positioned to capitalise on the growth opportunities in Malaysia’s retail sector.

3.   Can you elaborate on the management strategy of a professional mall manager? Things like refreshing/optimize retail mix, bringing in new concepts to stay relevant, dealing with underperforming tenants, etc

We work closely with many brands and concepts that cater to a wide range of age groups and customer profiles.  Depending on the location, catchment and positioning, our malls serve the well-heeled and sophisticated shoppers at Gurney Plaza, families at The Mines and East Coast Mall, as well as the adventurous young at Sungei Wang Plaza.

As a professional mall manager, we have expertise and experience in creating malls that people want to shop in.  This includes not just the hardware of how we lay out the mall, but also the software of getting the retailer mix right. This enables rapid mall expansion, optimal tenant mix and stronger occupancies, and also gives us sustainable rental income.

4.   What is M-REIT advantage compared to direct commercial property investment? (especially with Budget 2013 increasing RPGT, but the 10% withholding tax for REIT since 2008 has been extended to Dec 2016 since Budget 2012)

M-REITs are better investments than property for following reasons:

Tax

M-REITs do not have to pay corporate tax if they distribute more than 90% of their distributable income.  This leads to tax transparency and huge savings to an M-REIT, making investing in M-REITs more attractive.  CMMT’s distribution policy is to pay out at least 90% of distributable income in each financial year on a half-yearly basis.  So far, CMMT has distributed 100% of its distributable income to its unitholders.

 No stamp duty on acquisitions

When a seller sells real property to an M-REIT approved by the Securities Commission of Malaysia, gains from the disposal will be exempted from real property gains tax (RPGT), which is 10% on gains from the disposal of the property sold within two years of purchase and 5% if it is sold within two to five years.  When an M-REIT acquires real property, all chargeable instruments relating to the purchase of real property are exempted from stamp duty.  This presents huge savings to the M-REIT and seller, and gives both parties greater room for price negotiation.

 M-REITs are managed by professional managers

On the note of withholding tax, the Malaysian Government has extended the tax incentive period of the withholding tax until 31 December 2016.  We believe this will further promote the development of M-REITs and invigorate Malaysia’s capital and property markets.

CMMT’s portfolio of Gurney Plaza in Penang, a majority interest in Sungei Wang Plaza in Kuala Lumpur, The Mines in Selangor and East Coast Mall in Kuantan, Pahang are recognisable malls which investors and shoppers are familiar with, and can see how well the malls are performing. CMMT’s portfolio offers investors income and geographical diversification and a compelling investment in a stable and resilient portfolio. As the only “pure-play” shopping mall REIT in Malaysia with an income- and geographically-diversified portfolio of four shopping malls, CMMT can be viewed as a defensive (i.e. safe haven) investment that provides a stable income stream.

5.   What is the position of Queensbay Mall since its acquisition by CapitaMalls Asia on Dec 2010?  Will it be part of CMMT portfolio in the near future?

Since CapitaMalls Asia acquired Queensbay Mall, upgrades were carried out to realise the potential of the mall.  These include remixing the tenancy and improving the asset plan.  These have proven to be effective as Queensbay Mall achieved strong rental increases of more than 20%, as announced by CapitaMalls Asia.

As and when CapitaMalls Asia decides to divest Queensbay Mall, we would be interested to acquire it, provided that it is in line with our acquisition growth strategy in enhancing unitholders’ value.

6.   What is the current sentiment of local and foreign institutional investors in CMMT?  As in, are they buying/holding/selling?

Given the uncertain global economic environment, local and foreign investors have been looking to put money in safe haven investments such as dividend stocks, with low beta.  M-REITs, especially the retail-focused ones, are such an asset class.  The large listed retail M-REITs provide greater trading liquidity as a result of their size, and they also have recognisable malls which investors and shoppers are familiar with, and can see how well the malls are performing.  With the strong domestic demand for investment-class yield products, there is also perceived downside protection in terms of the REITs’ unit prices.

7.   Going forward to 2013, what is the outlook of retail-focused REIT?

On the back of strong private investment and consumption, Malaysia’s economy is forecast to expand strongly between 4.5% and 5.5% in 2013.  As a resource-rich country with rising disposable income, there is continued growth in Malaysia’s economy and retail sales.  Malaysia’s economy remains a compelling retail investment story, amidst the uncertain global economic climate.  Such growth bodes well for CMMT, as it will enable the retailers in our malls to post higher sales and, consequently, be able to afford higher rentals.

As the only “pure-play” shopping mall REIT in Malaysia with an income- and geographically-diversified portfolio of four shopping malls, we will continue to look for opportunities to enhance our existing portfolio and to provide unitholders with further income and geographical diversification.

On the capital management front, CMMT received approval from the Securities Commission of Malaysia on 6 June 2012 to establish a 20-year rated/unrated Medium Term Note (MTN) Programme of up to RM3 billion in nominal value.  With the programme in place, CMMT now has another avenue of capital to tap for our growth.

On 20 December 2012, CMMT MTN Berhad, a wholly-owned subsidiary of CMMT, issued RM300 million in nominal value of unrated MTNs under this MTN Programme.  The unrated MTNs will expire on 20 December 2016.  The proceeds from the unrated MTNs will be used to refinance existing borrowings undertaken by CMMT.

Ms Lim has over 15 years of real estate experience including property investment and development, sales and marketing and asset management activities in Australia, the Philippines, Thailand, Vietnam and Singapore. Ms Lim has extensive experience in property investment covering the retail, industrial, mixed developments and residential sectors.