CapitaLand Mall Trust's DPU could rise in 2019 as major projects finish

The $789.6m purchase price for Westgate implies a property yield of 4.3% or $2,746 psf.

CapitaLand Mall Trust's (CMT) distribution per unit (DPU) is likely to drive up 1.5% following its pending acquisition of Westgate through Infinity Mall Trust and opening of its latest shopping mall in 2019, according to Maybank Kim Eng (Maybank KE).

CMT saw its net profit income (NPI) climb 1.1% to 122.6m in Q3, whilst its DPU grew 5% YoY to $0.292 which was attributed to better performances at its larger malls.

Also read: CapitaLand Mall Trust NPI up 1.1% to $122.68m in Q3

Meanwhile, factors such as continued dips in economic activity, the termination of long-term leases and ‘sharper-than-expected’ rise in interest rates could affect CMT’s retail growth, according to Maybank KE analyst Chua Su Tye.

“Prolonged slowdown in economic activity could reduce demand for retail space, resulting in lower occupancy and rental rates,” he said. “Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.”

However, despite shopper traffic declining 1.8% YoY even as tenant sales rose 0.5% YoY, CMT’s overall portfolio occupancy improved QoQ from 98% to 98.5%, Chua said.

“Whilst we see an unexciting rental outlook for retail, we see destination malls delivering strong occupancy and rental growth,” Chua noted.

CMT received the go-ahead for its acquisition of the remaining 70% interest in Westgate during its extraordinary general meeting (EGM), the report stated.

Also read: CapitaLand Mall Trust to buy remaining 70% stake in Westgate for $789.6m

“The purchase price of $789.6m (excluding transaction fees) implies a property yield of 4.3% or $2,746 psf,” Chua noted. “Afterwards, CMT’s concentration from its three malls in the west of the island (Westgate, JCube, and IMM) rises from 12% to 18% of AUM.”

Funan which is CMT’s latest retail offering is slated to open sometime in Q2 2019 and Chua highlited how it already has pre-committed occupancies at 70% and 60% for its retail and office components, respectively. Tenants such as Golden Village Cineplex, Kopitiam Foodcourt, ABC Cooking Studio and Ark Futsal are already set to open stores at Funan.