CapitaMalls IPO set for year-end

FRESH details have emerged on CapitaLand’s plans to list its malls unit, CapitaLand Retail, which were first made public earlier this month.

South-east Asia’s biggest developer will list a stake of 25-30 per cent in its malls unit, to be renamed CapitaMalls Asia, by the year-end, chief executive Liew Mun Leong said yesterday.

Mr Liew, speaking on the sidelines of a conference, said that the listing would follow an extraordinary general meeting (EGM) of CapitaLand shareholders at the end of this month, who need to approve the flotation.

When CapitaLand first announced its plans for the listing, sources said that it could raise at least US$1 billion.

Rising consumer spending and increased presence of malls in countries such as China should mean ‘shopping malls will be the darling of real estate investing’ in Asia, Mr Liew said.

He said that the EGM would be followed by an investor roadshow. — Reuters

Spinoff by CapitaLand: Will Reit units lose out?

CAPITALAND on Monday announced plans to spin off its $20.3 billion retail portfolio into a separate listed entity. While the move by itself just realigns ownership, some key benefits will be derived for CapitaLand.

However, concerns have since been raised about the impact of the move on CapitaLand’s two listed retail property trusts – CapitaMall Trust (CMT) and CapitaRetail China Trust (CRCT). Both trusts might lose out if investor interest switches to the new CapitaMalls Asia (CMA).

CapitaLand, on the other hand, will benefit as it boosts its balance sheet.

CMA’s stakes in the malls under its umbrella have a total net asset value of $5.3 billion. Assuming that CapitaLand chooses to float 20-40 per cent of CMA, conservatively about $1.1 billion to $2.1 billion would be raised. This will increase CapitaLand’s cash position, lower its gearing and allow it to invest and grow its other core business.

‘We view the transaction positively and agree with CapitaLand that the capital raising will enable the group to foster growth in all its businesses – enabling its retail mall division’s growth to be accelerated while simultaneously maintaining relative balanced growth with its other business units,’ said Nomura analyst Tony Darwell.

But is the deal to the disadvantage of CMT’s and CRCT’s minority shareholders and retail investors?

The main issue, analysts said, is that CMA is a pure retail play, just like CMT and CRCT. Institutional investors in particular might want to re-allocate their funds.

‘Some of them might choose to transfer their shareholdings into CMA,’ observed an analyst at a brokerage here.

CapitaLand on Monday pointed out that CMA, which will undertake the development of properties, is a different kind of entity from the two real estate investment trusts (Reits), whose attraction is stable rental income from completed properties. About one-third of the malls under CMA are still under development.

However, institutional investors in search of an Asia-focused pure retail play might want to go with just CMA, which is larger with some 86 malls in its portfolio (compared to CMT’s 14 retail assets and CRCT’s eight). It is also more geographically diversified and comes with stakes in both CMT and CRCT. And CMA, backed by South-east Asia’s largest property group CapitaLand, is by no means a risky play either.

Investors of both Reits reacted to the news on Tuesday by sending CMT down 4.4 per cent and CRCT down 1.7 per cent. CRCT recovered one cent, or 0.9 per cent, to close at $1.18 yesterday, while CMT closed unchanged at $1.74.

So can minority shareholders and retail investors switch to CMA now if they wish? It’s debatable. CMT and CRCT are trading above their stock prices seen on March 6 this year, which is arguably when the current recovery in stock prices began. Then, CMT closed at $1.08, while CRCT closed at 60 cents, according to data from Bloomberg. So an exit from the Reits and an investment in CMA is possible – if one bought into those Reits during the downturn.

However, minority shareholders and retail investors who bought into both or either Reit near the boom period, when prices were substantially higher, cannot make an exit without booking losses. These investors don’t have the realistic option of making a switch to CMA.

Investors should, however, note that when it comes to day-to-day operations, it looks as if it will be business as usual for CMT and CRCT. The management companies of both Reits will be transferred to CMA, as will the right of first refusal for assets in the pipeline – that is, CMT will have the right of first refusal for CMA’s retail pipeline in Singapore while CRCT will have the right of first refusal for CMA’s retail real estate pipeline in China.

CapitaLand basks in positive spin (-off)

Its shares rise as investors eye special dividend; outlook rosy for CMA too

CapitaLand shares rose as much as 4.9 per cent yesterday on news that the property group will spin off its $20.3 billion retail portfolio into a separate listed entity.

Shares rose following analyst reports which said that the move was positive for both CapitaLand and the new CapitaMalls Asia (CMA). Many research houses also issued ‘buy’ calls on the stock and raised their target prices.

However, the news did not go down as well with shareholders of CapitaLand’s two retail property trusts – CapitaMall Trust (CMT) and CapitaRetail China Trust (CRCT).

One reason for the warm reception for CapitaLand’s shares was a potential special dividend, which CapitaLand said it could pay out post-IPO. The stock gained 8 cents, or 2.2 per cent, to close at $3.75 yesterday.

‘The proposed IPO (initial public offering) is positive for the group in the short term given the potential net asset value accretion and special dividend per share,’ said Citigroup analyst Wendy Koh.

Depending on the valuations ascribed to the spin-off, CapitaLand could record an exceptional gain on divestment, as well as potentially attract a revaluation of a significant part of the group’s asset base, noted JP Morgan analysts Christopher Gee and Joy Wang.

CapitaLand’s shares are also trading at around 1.2 times book value at the moment, and there could be some potential for a re-rating if the spin-off allows the underlying business value to become more apparent to the stock market, the analysts added.

The company will also benefit from the capital recycling exercise.

CMA’s effective interest in the $20.3 billion retail portfolio (including minority interests in some cases) is $7 billion. The book cost of the properties is $5.3 billion.

Using the net asset value of $5.3 billion, and assuming that CapitaLand chooses to float 20-40 per cent of CMA, about $1.1 billion to $2.1 billion would be raised. This will increase CapitaLand’s cash position, lower its gearing and allow it to invest and grow its other core business.

‘Assuming a divestment of a 30 per cent stake in CMA at book value, CapitaLand could expand its cash hoard to around $5.3 billion,’ said DBS analysts Lock Mun Yee and Derek Tan. ‘With a gearing of 0.3 times, it would have an additional $6 billion debt capacity, based on the higher end of the target gearing of 0.5-0.75 times.’

But there are concerns that CMA, which will take over all of the group’s retail business – which was widely thought to be the main growth engine for CapitaLand previously – will now be the more attractive option. Said Citigroup’s Ms Koh: ‘Post IPO, we are likely to see a switch in interest from CapitaLand to CMA.’

The shift in interest could also affect CMT and CRCT. Both stocks were down following CapitaLand’s announcement. CMT lost 8 cents, or 4.4 per cent, to close at $1.74, while CRCT shed 2 cents, or 1.7 per cent, to end at $1.17.

‘We expect the prices of CMT and CRCT to face some short-term weakness,’ said Kim Eng analyst Wilson Liew. ‘Shareholders of CMT and CRCT might take a while to digest the impact of the news.’

The main issue, analysts said, is that CMA is a pure retail play, just like CMT and CRCT. Institutional investors in particular might want to re-allocate their funds. ‘Some of them might choose to transfer their shareholdings into CMA,’ observed an analyst at a brokerage here.