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3 Reasons Why CapitaLand Mall Trust Can Increase Its Distributions In 2019

Capitaland Mall Trust (SGX: C38U), the largest real estate investment trust in Singapore, has had a stellar year so far. Its distributable income and distribution per unit both grew at strong rates of 3.3% and 3.0% respectively, in the first nine months of 2018 compared to a year ago.

There are good reasons to believe that the REIT can continue to do well in 2019. 

Reason 1: Positive rental reversion rate

The rental reversion rate refers to the adjustments of rental rates upon renewal. A positive rental reversion rate suggests that the property’s owner has managed to negotiate higher rent with tenants.

Between January and September this year, CapitaLand Mall Trust’s rental reversion rate for the 550 renewals or new leases it inked was a positive 0.6%. The table below shows the rental reversion rates across the REIT’s portfolio so far this year.

Source: Capitaland Mall Trust 2018 third quarter earnings presentation

Reason 2: Acquisition of the remaining 70.0% of Westgate

Last month Capitaland Mall Trust completed the purchase of the remaining 70.0% stake of Westgate that it did not already own. The retail complex Westgate is strategically located near Jurong East MRT station. With the Singapore government’s plans to add 20,000 homes and create 100,000 new jobs in the Jurong Lake District in the years ahead, Westgate looks to have good long-term prospects.

Reason 3: Opening of Funan in 2019

Funan was closed for redevelopment for three years in 2016 and is expected to open in the second quarter of 2019, slightly ahead of schedule. The new integrated development will comprise of office, retail, and serviced residence components and have a plot ratio of 7.0, compared to just 3.88 in the old property. As such, the gross floor area of the new property is more than 400,000 square feet larger than the old one, providing CapitaLand Mall Trust with the potential for comparatively higher rental income.

There are already a host of retail tenants that have committed to moving in when Funan reopens next year. As Funan has not been contributing rental income to the REIT for the past three years, the reopening of the mall will be akin to an acquisition of a new property and should contribute to distribution growth next year.

The Foolish bottom line

There are developments – shared above – that can make 2019 an even better year for CapitaLand Mall Trust than 2018. Investors should also note that the trust has maintained a strong balance sheet with a gearing of just 31.7% as of 30 September 2018. The low gearing affords the REIT an additional debt headroom of more than S$1.3 billion to fund more acquisitions if it sees fit. At the time of writing, CapitaLand Mall Trust’s share price (or more specifically, unit price) is S$2.29, which translates to a price-to-book ratio of 1.15 and a trailing distribution yield of 4.98%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended units of CapitaLand Mall Trust. Motley Fool Singapore contributor Jeremy Chia doesn't own shares in any company mentioned.