Sunday, June 13, 2010

Capitaland - Sprouting more branches with CapitaMalls Malaysia Trust

CapitaMalls Asia, which is 65.5% owned by Capitaland, announced on Friday that it has received approval from the Securities Commission of Malaysia to list a Trust (CapitaMalls Malaysia Trust) on Bursa Malaysia. The trust will consist of 1,350,000,000 units upon IPO, whereby 786,522,000 units will be offered for IPO, leaving CapitaMalls Asia with a 41.74% stake. This could fall to as low as 33% if an over-allotment option is exercised.

The trust will hold CapitaMalls Asia’s Malaysia shopping malls, and three Malaysian shopping mall assets will be injected into the trust upon IPO. These are the Gurney Plaza in Penang, an interest in Sungei Wang Plaza in Kuala Lumpur, and The Mines in Selangor, resulting in a total net lettable area of approximately 1.88 million sq ft for the portfolio. AmTrustee Berhad has been appointed as the trustee for CapitaMalls Malaysia Trust, and has valued the portfolio at approximately RM2,130.0 million (this is substantially different from the RM1,482.48 based on the indicative price of RM1.10 which cornerstone investors EPF Malaysia and Great Eastern Life Assurance have agreed upon, suggesting that some debt may also be injected into the initial portfolio).

This latest proposed listing augments our investment thesis for Capitaland - the company continues its excellent job of asset recycling, which frees up capital much more quickly for further growth. Along the years, Capitaland has created enormous amounts of shareholder value via REIT securitisation of its assets. Still maintaining a stake in each, the company could offload new developments quickly, and utilise the proceeds for further expansion, instead of waiting for years to recoup the development costs. The company also earns recurring income from the management of the trust assets, most of which are being paid for by new shareholders brought in under the REIT structure.

The listing of CapitaMalls Asia allowed Capitaland to monetise part of an important subsidiary for over $2.8 billion, but still retain its majority interest in the subsidiary (65.5%), and this proposed listing of CapitaMalls Malaysia Trust is further indication that the "Macquarie-style" model of asset recycling is very much alive under the Capitaland group.  

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