Upgrades on hold

High costs spur CapitaMall Trust to shelve expansion plans

THE manager of mainboard-listed CapitaMall Trust (CMT) said it will shelve expansion plans for three of its malls due to high construction costs and the competitive environment for resources currently.

CapitaMall Trust Management said CMT had planned to add office space and expand the amount of retail space at Funan DigitaLife Mall (Funan); create 95,000 square feet of office space for Tampines Mall; and create a new retail floor, relocate its cineplex and add an Olympic-sized ice skating rink at Jurong Entertainment Centre (JEC). The manager said that these enhancement plans are not critical to sustain CMT’s growth. The $65.2-million differential premium and stamp duties for Funan have already been paid in June and about $16 million in differential premium has been paid for JEC.

Mr Brandon Lee, investment analyst from DMG and Partners Securities, said that it is a prudent move on CMT’s part to hold back enhancement plans and to hold cash, in view of a tighter credit market and high costs in construction.

He also said that some of the proposed expansions, for example the ice skating rink, were not necessities in current market conditions.

“As there is more supply of office space than current demand, rentals for office space might be on a gradual decline and I think CMT recognises the market conditions going forward,” said Mr Colin Tan, Chesterton International’s head of research and consultancy.

He explained that with the pessimistic outlook of the global economy causing businesses to freeze hiring, the demand for office space will fall gradually. “Now, the unknown factor is how much the demand will shrink by,” he added.

Still, CMT managed to declare a distribution per unit (DPU) of 14.48 cents on an annualised basis for the third quarter ended Sept 30, up 7.3 per cent from a year earlier. It attributed the improved performance to the acquisition of Atrium@Orchard next to Plaza Singapura, and strong occupancy, which allowed it to sustain rental yields.

Separately, healthcare real estate investment trust First Reit said its annualised DPU for the third quarter was at 7.60 cents, up 12.9 per cent from last year. Cautious expansion plans will be the strategy going forward. Dr Ronnie Tan, chief executive of Bowsprit Capital Corporation, the company managing First Reit, said that prudence will be exercised “in assessing the attractiveness, timing and sequence of future acquisitions”.

Mapletree Logistics Trust has also announced yesterday that its third-quarter DPU will be 1.84 cents per unit. Looking forward, chief executive Mr Chua Tiow Chye said that the immediate focus is to optimise returns from organic growth. “At the appropriate time, we will explore opportunities that may arise when market conditions recover.”

Source : Today – 22 Oct 2008

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