CapitaMall  Trust’s  3Q14/9M14  distribution  per  unit  (DPU)  rose 6.2%/5.7% YoY on AEI  completions and positive rental reversion.  This quarter marks the completion of a second-phase AEI for Bugis Junction and  a  6.3%  YTD  positive  reversion.  Catalysts  include  yield-accretive acquisitions and greenfield development projects. We assume coverage with BUY and a SGD2.10 DDM-based TP (9.7% upside).

3Q14/9M14 results in line.  CapitalMall Trust  reported a  6.2/5.7% YoY increase in 3Q14/9M14 DPU, boosted by  asset enhancement initiatives (AEI)  that  were  completed  at  IMM  Building  and  Bugis  Junction  and  a 6.3% YTD positive rental reversion following the renewal  of 417  leases. The REIT  still has about 2.9% of gross rental income up for renewal for the rest of the year, comprising 84 retail leases.  Its  all-in financing cost remained unchanged at 3.6% with  a  debt maturity of 4.7 years (2Q14: 4.2  years).  Its gearing was at a healthy  34.1%.  Meanwhile,  occupancyrates at its asset  remained strong at 98.5%, with Westgate making good progress and achieving 96.3% occupancy (2Q14: 94.7%).

AEI on track. The ongoing AEIs at Bukit Panjang Plaza, Tampines Mall and IMM Building are progressing well. Over at JCube,  all 70 retail units at  J.Avenue  are  fully  committed.  Bugis  Junction  completed  the  second phase of its  AEI on Sep 2014, achieving its targeted  ROI of 9.0%. In our view,  the  redevelopment  of  Funan  DigitaLife  Mall  –  with  an  additional gross floor area  of 315,561 sq ft already approved for office use –  could serve  as  a future catalyst, but we believe the REIT’s  preference would be to change it to retail use, either wholly or in part. 

Consistent performer.  We like CapitaMall Trust  for its disciplined and cost-conscious  management  team,  and  believe  its  ongoing  AEIs  maybuffer  downside  risks  in  the  event  that  property  prices  correct.  It  has consistently  achieved  positive  rental  reversions  (2.3-13.5%  annually) since  2003.  Even  during  the  global  financial  crisis  in  2009,  the  REIT eked  out  a  2.3%  increase,  followed  by  a  6%  average  increase  in  the subsequent  four  years.  We  expect  this  momentum  to  be  sustained. Assume  coverage  with  BUY  and  a  dividend  discount  model  (DDM)-derived  TP  of  SGD2.10  (COE:  6.9%,  TG:  1.25%).  Risks  to  our  TP include   a  worse-than expected drop in tenant  sales and cost pressures stemming from a labour crunch.

Source: RHB