Will Funan's three-year makeover work wonders for CMT?

The new property might even have serviced apartments.

Funan DigitaLife Mall's massive overhaul comes with a hefty price tag: analysts at DBS reckon that the redevelopment will cost a whopping $579.6 million, which is expected to be fully financed by debt.

In order to maximise Funan's makeover, DBS argues that CapitaLand Mall Trust should consider adding serviced apartments to the new development.

If CMT clinches the Urban Redevelopment Authority's (URA) approval to add serviced apartments, Funan 2.0's net property income (NPI) is projected to increase by 236% to $53.9 million, adding 5 cents to CMT's net asset value (NAV).

Adding serviced residences will also hike Funan's contribution to the portfolio's NPI from 4% to 9%, while the building's asset value will also increase from $367 million to $945 million.

If CMT is unable to add serviced apartments to the new Funan development, DBS expects the new structure to have rougly the same amount of retail space to the current Funan and provide office space about half the size of CapitaGreen.

Under this model, CMT's net asset value per share will be lifted by 1 cent, or a 0.7% increase to NAV.

“We believe adding the serviced apartment component together with office, would give rise to higher returns due to their higher efficiency and lower cap rate compared to retail component. From a practical perspective, given that Funan’s site is not in close proximity to any sizeable office or residential developments, we believe CMT will need to nurture an ecosystem with both office and serviced apartments to drive sufficient demand for retail over both weekdays and weekends,” said the report.