How will Capitaland Mall Trust see rental growth amidst incoming competition?

Its portfolio occupancy slipped slightly to 98.3% as at end-Q2 2019.

CapitaLand Mall Trust’s (CMT) rental growth could remain in low single digits as the influx of one million sqft of new incoming retail space in Singapore could result in some short-term competition, according to a report by CGS-CIMB.

This sentiment was echoed by a separate report by Maybank Kim Eng (Maybank KE), which forecasted a drag on tenant sales across the firm’s larger assets under management (AUM) given the weak retail sales outlook. “We think that CMT’s valuations will likely be supported by its scale and trading liquidity within the S-REITS space,” Maybank KE’s analyst Chua Su Tye said.

Also read: Retail sales shrink for fourth straight month in May

The trust has a further 7% and 26.7% of gross rental income to be re-contracted in FY 2019 and FY 2020, respectively, CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee noted. “Management indicated it would continue to adopt a proactive asset management strategy, including potential asset enhancement of its older assets, as well as redevelopment and acquisition opportunities,” they said.

CMT’s portfolio occupancy slipped slightly to 98.3% as at end-Q2 2019 versus 98.8% in Q1, as Clarke Quay and Bedok Mall saw their occupancies drop to 94% and 98.9%, respectively. “We understand that the management is reconfiguring tenant mix in Clarke Quay,” Eing and Lock noted. “CMT saw a 1.9% YoY increase in shopper traffic portfolio-wide, whilst tenant sales psf slipped 0.9% YoY.”

That said, tenant sales growth at Westgate was observed, led by its sporting goods, jewellery and watches, and food and beverages (F&B) segments, which offset weaker home furnishings, IT and telecommunications, and electrical and electronics sales, Chua noted.

Also read: CapitaLand Mall Trust NPI up 10.9% to $273.25m in H1

Nonetheless, CMT achieved a positive reversion of 1.8% for leases renewed in H1 2019, at an 86.3% retention rate. The analysts added that the highest reversions were felt at IMM Building, Lot One and Westgate, ranging between 4.2% and 5.6. Only Raffles City reported a decline in rental reversion of -0.3% in Q2.

CMT indicated that it would embark on a $15m-$20m asset enhancement initiative (AEI) project for Lot One Shoppers’ Mall, which will commence in Q3 2019. “This entails expanding the library footprint to include the latest digital initiatives and features to enhance the community engagement, coupled with reformatting the cinema to maximise efficiency of seating occupancy,” OCBC Investment Research (OIR) noted in a separate report.