Can CapitaLand Mall Trust survive 2016’s volatile equity market?

CapitaLand Mall Trust (CMT) is poised to dominate the retail REIT scene in 2016, with positive rental reversions and increased tourist arrivals playing to its favour.

According to a report by RHB, CMT is likely to enjoy mid single-digit (about 5%) positive rental reversion in 2016 as encouraging trends are expected in CMT’s tenant sales (psf/month) and traffic flow at its malls.

“In the recent reported quarter, the retail REIT reported an upward trend in tenant sales, a 5.3% YoY increase for FY15. With this, we think that the retail landlord is in a better position to command higher rental rates this year,” asserts RHB.

Moreover, an anticipated pick-up in tourist arrivals is seen to spur consumer spending in malls. This bodes well for CMT, as its malls are located near tourist attractions such as Plaza Singapura, Bugis Junction and Clark Quay.

RHB also thinks that the expected recovery of Singapore tourism could be boosted by positive catalysts like lower airfares, a busier year for events, and an anticipated climb in Chinese tourists visiting Singapore.

Further, there’s still room for CMT to exercise a capital recycling strategy given that it currently owns non-core assets such as JCube and Sembawang Shopping Centre.

RHB further notes that on top of this, CMT handles its portfolio favourably. For instance, CMT recently parted ways with its non-core asset Rivervale Mall, which was estimated to be divested at a attractive cap rate of about 3.4%. Compared to the average cap rates for retail assets, independent real estate company CBRE estimated 4Q15 average cap rates to range from 4.75% to 5.25%.

“In addition, we advise investors to take up CMT as it is highly liquid, which may be especially advantageous in the current volatile equity market,” states RHB.