Southeast Asia’s largest real estate developer, CapitaLand, announced this afternoon that it is offering to buy back its Singapore-listed subsidiary, CapitaMalls Asia Ltd, for S$3.06 billion ($2.45 billion).
CapitaMalls Asia has been CapitaLand’s retail development subsidiary, and is perhaps best known for its chain of Raffles City shopping centres in Singapore and China. The retail real estate developer has a portfolio of 85 operational retail malls spread across Singapore, China, India, Japan, and Malaysia, with another 20 developments said to be in the pipeline.
CapitaLand is offering S$2.22 in cash for each share in the retail developer, a 23 percent premium to CapitaMalls’ closing share price of S$1.8 on Friday. Trading in both companies’ shares was halted on Monday pending the announcement. CapitaLand already owns 65.3 percent of CapitaMalls Asia.
According to a statement from the CapitaLand, the privatisation of CapitaMalls Asia is part of the company’s new “One CapitaLand” strategy of unifying its different divisions to enable it to better develop mixed-use projects combining retail, office and residential space.
The developer, which is 39 percent owned by Singapore sovereign investor Temasek Holdings also said that the privatisation of its mall wing will help to simplify its organisational structure. If the CapitaMalls Asia acquisition is completed, the property group would consist of a single listed developer, and five publicly listed REITS.
Jump-Starting Interest in Stagnant Stocks
The privatisation of the retail real estate unit can also be seen as a way to move forward spark new interest in CapitaLand’s shares. Since listing in April 2009, the developer’s share price has stayed nearly flat at S$2.92 despite the Straits Times Index jumping by 69.4 percent from 1,897 points to 3,214 points over the same time period.
If CapitaLand succeeds in taking CapitaMalls Asia private, even at 1.2 times its book value, the company would see its earnings per share for 2013 jump by 21.5 percent and return on equity increase from 5.4 percent to 6.7 percent.
Slowing Returns on China Investments
Despite buying more properties on the mainland last year, revenues for Singaporean retail developer CapitaMalls Asia dropped 8.7 percent during the fourth quarter of 2013, due mainly to a slow down in China, the company announced in February.
According to its fourth quarter financial results for the Singapore-listed firm, CapitaMall’s revenues for October through the end of December were S$103.7 million (US$81.9 million), mainly due to lower returns from China.