Update on Capitaland: The Acquisition of CapitaMall Asia

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I have introduced Capitaland and its portfolio in my earlier post, in which I shared about Capitaland growth story in China and its future expansion plans.

This post is about one of the most exciting financial news that released this week, which will be Capitaland multi-billion dollars deal over CapitaMall Asia (CMA). The offer was a $2.22 per share which worked out to be a 22% premium to $1.80, the price at closing last Friday.

Capitaland’s CEO, Lim Ming Yan, explained the intention to privatise CMA is to provide the group with more agility to react to increased opportunities in integrated project in Singapore and China. Integrated projects refer to mixed property development such as residential apartments build on top of a shopping mall (widely seen in Singapore) or town development in China.

Why am I excited about this deal?

If you are staying or visited Singapore regularly, you will know how rapid CapitaMall Asia has transformed the local retail shopping sector. From owning the top 2 most profitable malls in Singapore (Tampines Mall and Junction 8, source: The Business Times 24 March 2014 page 9) to successful transformation of shopping malls such as J-Cube (one of the 2 ice skating venues in Singapore), Bugis Junction and Bugis+. There is also a potential increase in future earning from the most recent built Westgate Shopping Mall in Jurong area to the upcoming Project Jewel to be situated near the famous Changi Airport.

Project Jewel- A future shopping mall in Changi Area

Project Jewel- A future shopping mall in Changi Area

These successes of CapitaMall make me wants to hold a share of the company. However, due to limited resources, I was torn between Capitaland and CapitalMall Asia. However, the news of Capitaland going to acquire CMA gives investor like me a bonus. If this deal is successful I will have exposure to residential, commercial and retail sector just by owning one counter.

How is it going to benefit Capitaland?

First of all, it is going to strengthen CapitaLand’s financial report card. This deal once cast and stoned will immediately raise the return of equity from 5.4% to 6.7%, which is a good news to all existing Capitaland’s shareholders. Even market analyst are bullish about Capitaland long-term growth in the property development sector.

Secondly, it streamline the group’s operations and strengthen the group focus on how it manage the available resources. For example, there will be no competing of land resources and its intended use (residential or retail) once the deal is confirmed. Both parties now become one entity to develop the land for the highest overall return on property, be it retail, residential or mixed development.

Conclusion

Whether or not to put in your hard-earned cash, you are going to make your own decision and judgement when investing. After all, there are a few potential headwinds that Capitaland has to face with such as the cooling of China’s economy and the various cooling measures roll out by the Singapore government to curb the rising price of residential property in Singapore.

In my opinion, these are just short-term risks and challenges. Looking forward, the growth should outweigh the weakness in the long-term.

Have fun investing! 🙂

2 thoughts on “Update on Capitaland: The Acquisition of CapitaMall Asia

  1. An update:
    1) 1st Q 2014, Capitaland reported a 1.7% drop in net profit to $182.8m.
    2) Revenue dipped to 3.4% to $612.6m.
    3) Mainly due to 37.7% drop in revenue from CapitaLand Singapore to $196m, the only unit that failed to record higher revenue.
    4) Sales from Urban resort Condo and The Interlace were tapered off after TOP.
    5) Absence of rental income from TechnoPark@Chai Chee which was divested in Nov 2013.

    In the short-term, the company expects demand and prices for private homes to further moderate under the effect of total debt servicing ratio (TDSR) framework and concerns over interest rates hike.
    The long-term outlook for the residential market remains positive as demand is expected to be supported by government policies to promote population and economical growth.

  2. An update(Business Times, 17May2014):
    CapitaLand sweeten delisting offer for CMA with a higher price of $2.35 per share.

    This is after shareholders voiced their unhappiness over the initial offer price of $2.22 compared to the initial public offer (IPO) price of $2.12 in November 2012.

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