- We reaffirm our BUY recommendation on CapitaMalls Malaysia Trust (CMMT), with an unchanged fair value of RM2.15/unit, based on our DCF valuation.

- The proposed acquisition of Tropicana City Mall (4-storey shopping mall) and Tropicana City Tower (12-storey office building) did not materialise.

- This is because both parties are unable to agree on the sale and purchase agreement due to price disagreements.

- While Tropicana City Mall would have fit well in CMMT’s portfolio of malls and potentially boost earnings, we are neutral on this development given CMMT’s strong backing by its sponsor, Capitamalls Asia (CMA).

- CMMT continues to have strong pipeline of assets for injection:-

- (1) Queensbay Mall – Rentals yields have stabilise, achieving over 20% in rental reversion since CMA’s acquisition in April 2011. As such, the mall is a ready and yield-accretive asset, in our view. (2) Melawati Mall (50:50 joint venture between CMA and Sime Darby) – Construction is expected to complete in end-2016. Injection could happen earliest in 2020.

- All in all, our EPU estimates remain unchanged, with the assumption that Queensbay Mall is expected to be injected next year. We believe CMMT has the first mover acquisition advantage (first to embark on acquisition) among the retails REITs.

- CMMT’s prospects remains favourable and positive, underpinned by a well-diversified portfolio of malls. At the current levels, CMMT trades at distribution yields of 5.9% and 6.5%, respectively for FY13F and FY14F (post-injection of Queensbay Mall). 

Source: AmeSecurities