CMA shareholders should stand their ground against 'fair offer'

THE CapitaLand (CL) offer for the 35 per cent of the CapitaMalls Asia (CMA) shares they do not own is yet another example of the lack of respect for minority shareholders. The post-IPO performance of CMA shares and the paltry premium over the IPO price and book value multiple should concern all CMA shareholders.

At the November 2009 CMA IPO, all of the proceeds went to CapitaLand and none were invested into CMA. Thus the IPO and current offer are just asset trades for CL with no strategic benefit for CMA shareholders. Prior to the IPO, CL shares peaked at $8.60 and during the financial crisis fell almost 80 per cent. A few months later, CMA's IPO was priced at $2.12, closed the first day at $2.30 and the multiple of book value offered was 1.55x. The current offer of $2.22 is valued at a thin 1.2x book value.

Yet, now more than four years later, CL wants to pay only a 4.7 per cent premium to the IPO price, a 3.4 per cent discount to the day one closing price and a 23 per cent discount to the IPO book value multiple. Has CMA really deteriorated that much over the last four years?

At the time of the IPO, CMA had 59 completed projects and today there are 85, a 44 per cent increase. In 2013 vs 2012, revenue, profit and the asset value per share were all up about 10 per cent and operating income increased a whopping 40 per cent. Looking back to the IPO, in 2009, profit was $388 million and for 2013 it was $600 million, an increase of 55 per cent. Total equity in 2009 was $5.5 billion and at year-end 2013, it is $7.2 billion, more than a 30 per cent increase. So operating performance since the IPO has been quite strong and hardly justifies a discounted multiple to book value and a discount to the closing price after the IPO.

CAPITALAND MAKES S$3.06 BILLION OFFER FOR CAPITAMALLS ASIA

CapitaLand has made an offer of S$3.06 billion for the full acquisition of its subsidiary CapitaMalls Asia, which it now owns 65 per cent of.

The offer stands at S$2.22 per share, in cash, and is at a 23 per cent premium over its closing price last Friday.

This acquisition will allow CapitaLand, which is almost 40 per cent owned by Temasek Holdings, to better consolidate its business strategies with CapitaMalls Asia in a movement called “One CapitaLand”.

The company said, “The ‘One CapitaLand’ strategy seeks to harness the key strengths of its various business units to create differentiated real estate projects and enhance overall project returns.”
Explaining, CapitaLand continued, “For example, the pre-sales of residential units help fund development costs and improve project cash flows whilst mall connectivity enhances the appeal to commercial tenants and serviced residence customers. Malls in integrated developments are likely to enjoy higher foot traffic and a captive catchment from integrated offices and serviced residences.”
The listed CapitaMalls Asia, will be taken private post-deal.

CapitaMalls is one of South East Asia’s largest mall operators with more than 100 shopping malls, with a third of its revenues coming from Singapore, and more than 40 per cent from China.

Suntec REIT: Placed For Better?

Analysts were surprised when Suntec REIT (Sun) decided to issue new shares for placement to institutional and private investors. The trust raised net proceeds of $341.1 million which will be used to repay its existing debts that are maturing this year. 

This came as a surprise to analysts as Sun had just issued $310 million worth of medium-term notes for refinancing purposes. 

Adding the recent debt and equity issue, Sun should have enough funds for its refinancing needs this year. Sun is not expected to raise additional funds this year as the next major refinancing is anticipated to be in 2015. 

This share placement will strengthen the balance sheet as its debt level will be reduced from 39.1 percent to 35 percent. However, the Distribution Per Unit (DPU) will be lowered due to a dilution of shares from the new issue. 

Some market watchers question the decision for the trust to raise funds through equity as interest rates are still low. The cost for refinancing might be higher should Sun decide to seek funds through debt in 2015 as it will clash with projections of an interest rate hike by the Federal Reserve. 

Looking at a long term perspective, Sun is still expected to perform with its quality portfolio. The trust's portfolio consists of commercial properties (retail and office) which includes Suntec City, Park Mall, One Raffles Quay and Marina Bay Financial Center. 

Currently, the trust enjoys a high occupancy rate of above 90 percent. Sun is also in the process of diversifying its portfolio with the recent acquisition of an Australian office building which will complete its construction by 2016.