Update on Capitaland: The Acquisition of CapitaMall Asia

rsz_shopping_malls_singapore_westgate_westgate_singapore-facade_main

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! 🙂

A Thought on Work-Life Balance

Liew Mun Leong

To me, work life balance is not easy. Since it is not a zero-sum game (quoting ex-CapitaLand CEO), then naturally it won’t be balance, ain’t so?

He is a believer of principled pragmatism where it defines ” is being practical yet not sacrificing your core values.” Our founding father used the same approach in making unpopular but appropriate decisions that has largely account for the success of what Singapore is having now.

So to keep it short, I would say, you have to hold equal values for both your job and the various perspective “life” that you have, be it personal, family or friends. It must make so much sense to you that it is almost practical to do so. This drives down to meaning and purpose of work – do you get to see them?

What’s on an employer mind is that perhaps as workers we demand work life balance, but perhaps what most worker yearn for is just a fruitful and equally challenged work, exactly how we fought to lead a meaningful personal life. Both aspect to be equally gleaming having achievements that we can be proud of.

I don’t know if you encounter this word before, instead of calling the desired state of work-life balance (where it doesn’t really exist in a capitalism society), we should have it named “Work-Life Harmony”.

The important notion that I trying to bring across is that to strike a harmony where neither one of them will disturb the status of the other. There will be time where work needs you more, vice-versa there will be time where your family/personal needs you more.

A peek at CapitaLand

Ever since last June when Singapore government implemented a framework known as total debt servicing ratio (TDSR), which it capped an individual’s debt-to-income ratio at 60%, the real estate market in Singapore has begun to feel a crunch. It was reported by The Straits Times on Saturday 8 Feb 2014 that there are fewer home launches in the suburbs region. It was also reported that sales has plunged to their lowest levels since the depths of the financial crisis back in year 2008.

Inevitably investors will have to take prudence when putting their hard-earned money into real estate be it a physical house or in real estate related stocks. In my opinion, Singapore real estate market will have limited growth for this year unless there is a tweak in the cooling measures. To achieve strong growth, a real estate company will have to venture out of Singapore to seek opportunities overseas. CapitaLand is such a company.

CapitaLand’s foray into China began way back in 1994 and ever since it has entrenched itself to be a leading developer in China. Its competitors are domestic players such as Vanke and Evergrande. As of September 2013, China accounted for 39% ($14.2 b) of the group total assets. For example, the group’s unit CapitaMalls Asia has more than 60 shopping malls in China and it is expected to grow double-digit in their net property income year on year with the raising middle-income group driving consumption demand.

This year marks CapitaLand’s 20th year in China and announced that they are going to deepen their presence in five city-clusters spanning across the country namely:

1. North – Beijing and Tianjin

2. East – Ningbo, Suzhou, Hangzhou and Shanghai

3. West – Chengdu and Chongqing

3. South – Guangzhou and Shenzhen

5. Central –  Wuhan

source: The Business Times 8 Feb 2014

I am glad to know that The Ascott Limited, CapitaLand’s wholly owned serviced residence unit, is looking to achieve its target of 12,000 apartment units in China by year 2015, deepening its presence in first-tier and high-growth cities. This is because Ascott REIT will stand to benefit from this growth, which is why I am still quite bullish about this REIT.

Last but not least, as the adage says “Do not put all your eggs in one basket”, CapitaLand besides focusing on their core business in China and Singapore, they will be nurturing and develop their business in other geographies such as Australia and Vietnam, which could potentially be a catalyst for future growth.

To conclude, in my opinion,  I am bullish on CapitaLand future growth in the long-term. Although in Singapore they are expected to experience limited growth, a plethora of opportunities are present in their overseas portfolio. Having said that, you have to do your own research and form your own opinion before investing.

Have Fun~ 🙂