SINGAPORE (July 25): The reopening of CapitaLand Mall Trust’s (CMT) Funan shopping mall after a three-year redevelopment was met with much fanfare late last month.

Comprising a six-storey retail mall, two six-storey office blocks and a Lyf-branded serviced residence, the mixed-use development on North Bridge Road is one of 15 properties owned by CMT.

The retail portion comprises 507,000 sq ft of gross floor area and 320,000 sq ft of net lettable area, while the office component consists of 260,000 sq ft of GFA and around 210,000 sq ft of NLA.

As at end June, the property has a committed occupancy rate of 96.1%, with contributions expected to start kicking in from the second half of the year.

With Funan’s opening, CMT’s portfolio will be valued at around $11.5 billion, while AUM will cross $12 billion for the first time.

See: New Funan gives CMT an immediate boost in AUM, subsequent lift to NAV, NPI and DPU

But, after romping upwards by 21% since the start of the year to hit a 52-week high of $2.75 earlier this month, CMT seems to have lost some steam. The stock has since fallen some 4% off its July 5 peak, closing at $2.64 on July 25.

The way some market observers see it, the positives from Funan could already be priced in.

For the 2Q19 ended June, CMT saw its gross revenue grow 10.6% to $189.5 million, as net property income (NPI) rose 10.2% to $133.2 million.

The increase was mainly due to the completion of the acquisition of the remaining 70% interest in Westgate in November last year.

Distribution per unit (DPU) was up 3.9% y-o-y to 2.92 cents, in line with street expectations.

See: CapitaLand Mall Trust records 3.9% rise in 2Q DPU to 2.92 cents

“We believe its share price has run ahead of fundamentals, driven by liquidity and the hunt for yields,” says RHB Research analyst Vijay Natarajan. “While retail supply is expected to slow down, challenges remain in terms of sluggish retail sales, changing consumer trends and e-commerce growth.”

“We recommend that investors wait for a pullback,” he adds.

RHB is maintaining its “neutral” call on CMT but raising its target price to $2.38, from $2.20 previously.

“We cut our COE assumption by 20bp to 6.9% to better reflect the prolonged low-interest rate environment, and lift terminal growth to 1.75% (from 1.5%),” Natarajan says.

His views are echoed by Maybank Kim Eng Research analyst Chua Su Tye, who expect to see a drag on tenant sales across CMT’s larger AUM going ahead, 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. But with the lack of near-term growth catalysts and no clear acquisition strategy, we stay at ‘hold’,” Chua says.

However, Maybank is raising its target price to $2.60, from $2.40 previously, on the back of a lower risk-free rate assumption.

 Meanwhile, CGS-CIMB Research is also keeping its “hold” call on CMT, with an unchanged target price of $2.60.

“CMT’s 2H19F earnings growth is likely to be underpinned by gradual contributions from Funan,” says lead analyst Eing Kar Mei.

With a strong balance sheet and a comfortable gearing level at 34.2%, which suggests between $1.8 billion to $2.8 billion in estimated debt headroom, the analysts see the potential acquisition of Jewel Changi as a rerating catalyst.

“CMT is keen to look at Jewel Changi if the sponsor chooses to divest its stake,” says RHB’s Natarajan.

According to Natarajan, CMT’s management had noted that shopper traffic and tenant sales at Tampines Mall and Bedok Mall – two of its malls in eastern Singapore where Jewel Changi is located – suffered high single-digit drops immediately after Jewel Changi opened.

“CMT has also identified about four malls that it believes has development potential, based on Urban Redevelopment Authority’s draft masterplan for 2019,” says Natarajan. “It is also open to overseas asset acquisitions.”

According to RHB valuations, units in CMT are trading at an estimated price-to-book value (P/BV) of 1.3 times and a dividend yield of 4.5% for FY19F.