SINGAPORE (July 24): RHB Research is keeping its “neutral” rating on CapitaLand Mall Trust with a marginally higher target price of $2.08, from $2.07 previously.

This comes despite CMT managing to hold its ground in 2Q amid challenging macro-economic conditions that have laid siege to the retail environment.

CMT’s recorded flattish rental reversion as well as slight increases in its shopper traffic and tenant sales in the quarter, compared to declines across the board in 1Q.

See: CapitaLand Mall Trust 1H DPU increases 0.2% to 5.48 cents

“Singapore’s retail environment showed signs of improvement in 2Q17,” says RHB analyst Vijay Natarajan in a Monday report. “Looking ahead, we expect rental growth to be muted, as retail supply remains high amid changing consumer demand.”

According to CBRE, some 3.1 million sq ft of retail supply is expected to come on-stream over the next three years.

“Amid these challenges, the location and positioning of malls would be crucial in delivering growth and we expect well-located suburban malls with a good population catchment to still outperform the industry average,” Natarajan says.

In addition, Natarajan opines that CMT’s recently-completed asset enhancement initiative (AEI) works on Bukit Panjang Plaza is timely, and should help improve shopper traffic and fend of the competition from nearby malls.

CMT will also be looking to the return of Funan DigitaLife Mall to provide a boost.

According to Natarajan, close to 30% of the retail net lettable area (NLA) at Funan Mall has already been pre-committed, well ahead of its expected re-opening in the fourth quarter of 2019.

“The healthy pre-commitment level augurs well for CMT to be selective about future tenants, and would aid in better curation of the mall,” he says, noting that CMT has said it is “on track” to achieve its target yield of 6.5% for the redevelopment of the mall.

“CMT offers a FY17F yield of 5.5% and trades at 1.1x FY17F P/BV, which we deem as fair,” Natarajan adds.

Units of CapitaLand Mall Trust are trading 2 cents higher at $2.05 as at 11.37am.