What's the saving grace of CapitaMall Trust?

Lower occupancies are darkening the short-term horizon for its existing malls but DBS sees an offsetting upside.

The nearing public opening of JCube in the Jurong Lake District, which has racked up 90% pre-committed leasers, will buoy the total occupancy rate of the company, according to DBS.

This even as other malls underwent asset enhancement initiatives (AEI). Will the company fare better in the second half of 2012?

Here's more from DBS:

Operationally, the trust renewed 503 leases in FY11 with a positive rental reversion of 6.4% y-o-y on the back of 6.3% increase in tenant sales. However, occupancy fell 1.2 ppts q-o-q to 94.8% due to malls undergoing AEI.

Still a positive rental reversion picture, tapping into more low hanging fruits. Going forward, the trust will enjoy positive reversion, as 26.5% of the leases are due for renewal this year. Most of these leases were signed during the 2009 GFC. In addition JCube is on track to open its doors in 2Q12. Pre-commitments have reached >90%. This should mitigate further downside in occupancies (before picking up in 2H12) as the AEI works intensifies at The Atrium and Iluma. Meanwhile, the trust has announced AEI at Clarke Quay at a worth $15.6m, which will generate a decent 13% ROI. The AEI will commence in 2Q12, to be completed within a quarter.

Gearing at 38.4%, balance sheet remains strong. With S$145.8m revaluation surplus largely from a 15bps cap rate compression, net gearing ratio remained at 38.4%. Funding for the remaining AEI works including project financing for its development project at Westgate have been secured.

Maintain BUY, expect better 2H. We have cut our FY12/13 DPU by 6- 9% to 9.8cts/10.5cts to reflect the frictional vacancies during the upgrading works at its malls. As a result, our TP is cut by 1.5% to $2.05. We continue to like the retail sector and CMT as a market leader in this space is well positioned to weather any economic slowdown.