Will Distributions At CapitaLand Mall Trust Be Threatened By Funan DigitaLife Mall’s Closure?

On 10 December 2015, CapitaLand Mall Trust (SGX: C38U) announced that it will be redeveloping Funan DigitaLife Mall. CapitaLand Mall Trust is a real estate investment trust that owns retail malls in Singapore and Funan DigitaLife Mall belongs to the REIT’s portfolio.

The redevelopment, which will see Funan DigitaLife Mall become an integrated development, is expected to take place in the third quarter of this year and is anticipated to take three years to be completed. The project also means that CapitaLand Mall Trust will not have revenue from the property for the duration of the redevelopment.

For unitholders of the REIT, it would be natural to be concerned about how its distribution income will be affected. Wilson Tan, the REIT manager’s chief executive, explained how the redevelopment will take place in a recent earnings briefing for the REIT’s 2015 fourth-quarter results:

“In terms of Funan, we announced on 10 December that we will be redeveloping Funan after going through a very extensive and exhaustive study, in terms of what will be best for Funan. This included also the disposal of Funan itself. Upon completion [of the study], our conclusion was in the interest of CMT [CapitaLand Mall Trust] to redevelop Funan. So, the plan now is to go about doing so.

We will keep Funan open until June of this year. So, the Funan Mall will continue to function. We have, in fact, for every month promotions that is put in place that has been announced to the tenants. For example, from 8th January onwards, we have already put in place a Lunar New Year promotion, we have a Valentine’s promotion in February, we have also an anime event that is coming up – so we have in every month, put in place activities all the through to June.

At the end of June, that’s when we close it down. That’s where will be begin to look at the redevelopment work. I am not able to share with you in detail at this point in time, but I assure you that once the plans are approved, once we have gone through the necessary regulatory framework that’s where we will share a little bit more.

Just also to give a little heads-up to, we certainly looking at office component, we are also looking at retail component. So, that is something I can share with you at this juncture.”

Zeroing in on the loss of income from Funan DigitaLife Mall, Tan also added the following comments:

“Well – clearly, as we look at Funan itself, the NPI [net property income] is about $20 million. We have gone ahead and made an acquisition in Bedok Mall through Bedok Mall Trust itself. And that, we believe, will cushion the drop in Funan. We certainly will go out and look at all our portfolio and see what we can continue to do to shore up the NPI.

For perspective, CapitaLand Mall Trust’s NPI for 2015 segmented by property is summarized in the presentation slide below:

2016-03-07 Capitaland Mall Trust NPI
Source: CapitaLand Mall Trust’s earnings presentation

As you can see, Funan DigitaLife Mall contributed close to 5% to CapitaLand Mall Trust’s overall NPI in 2015.

To be sure, investors should note that Bedok Mall’s NPI contribution of $10.3 million had occurred over a period of only three months. The level of NPI contribution could be higher for the fourth-quarter due to holiday spending, but overall, it would appear that Bedok Mall’s contribution will be sufficient to cover the shortfall from Funan Digitalife Mall’s redevelopment.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.