April 14 (Bloomberg) -- CapitaLand Ltd., Southeast Asia’s biggest developer, offered to buy the rest of its mall unit for about S$3.06 billion ($2.4 billion) to consolidate some businesses and boost returns.
The developer bid S$2.22 a share for CapitaMalls Asia, the Singapore-based company said in a statement to the stock exchange today, a 23 percent premium to the last closing price on April 11. Trading in shares of both companies was halted before the announcement.
CapitaLand, which owns 65.3 percent of CapitaMalls Asia -- whose Singapore malls include ION Orchard and Plaza Singapura along the city’s famed Orchard Road shopping strip -- sold shares in the unit in 2009, raising S$2.8 billion. The latest deal will help CapitaLand’s increased emphasis on mixed-use developments, those that include residential, commercial and retail projects, according to Standard Chartered Plc.
“CapitaLand is doing a lot more integrated projects compared to when they did the listing of CapitaMalls, so the deal is a good investment by CapitaLand,” said Singapore-based Regina Lim, head of Asian property research at Standard Chartered.
Such projects include Project Jewel, a new development at Singapore’s Changi airport where a parking lot is being turned into a shopping mall and hotel, and the Atrium@Orchard, which has retail and office space along Orchard Road.
CapitaLand’s offer works out to about 1.2 times CapitaMalls Asia’s book value, which is cheaper than the 1.5 times book value when it listed in 2009, according to brokerage UOB Kay Hian Pte.
“The move will be near-term negative, but longer-term positive,” said Vikrant Pandey, an analyst at UOB Kay Hian in Singapore. “While this will help reduce the holding company discount that market applies in valuing CapitaLand, investors will ascribe deeper discounts for subsequent listings that CapitaLand intends to do.”
Taking the unit private would raise the earnings per share of CapitaLand Group by about 22 percent for the year ended Dec. 31, and improve the return on equity of the group to 6.7 percent from 5.4 percent for the same period, the developer said in the statement.
“The market has changed,” CapitaLand President Lim Ming Yan said at a press conference in Singapore today. “Earlier companies were pure play residential, now companies are emerging that are doing mixed developments which include homes, offices and malls. This move will help us compete better.”
CapitaMalls Asia owned 105 shopping malls valued at S$34.3 billion as of Dec. 31, the company said in a presentation in March. The mall owner reported a 17 percent increase in fourth-quarter profit to S$216.4 million from a year earlier. CapitaMalls Asia holds S$1 billion in cash with a net gearing of 22 percent, according to a Feb. 14 report from OCBC Investment Research.
CapitaLand completed the sale of its entire stake in Sydney-based Australand Property Group last month. The developer will use part of the about A$1.28 billion ($1.2 billion) from the sale to invest in Singapore, China and to repay debt, it said.
“CapitaLand is putting the divestment proceeds from Australand to good use as there is an accretion to earnings and return on equity,” Lim at Standard Chartered said.
Standard Chartered has a buy rating on CapitaMalls because the stock is undervalued, Lim said.
CapitaLand shares declined 3.6 percent this year to April 11 when they closed at S$2.92. CapitaMalls Asia fell 7.9 percent this year to S$1.805 last week.
Singapore malls contributed 55 percent to its profit for the year ended Dec. 31 at S$405 million, followed by China, where its malls helped add S$262 million, or 35 percent of the company’s profit, CapitaMalls said. Malls in Singapore and China accounted of 86 percent of the company’s assets.
CapitaLand in February said fourth-quarter profit fell 46 percent after it recorded a loss on the sale of a stake in Australand and lower revenue from its Singapore home sales. Net income declined to S$142.9 million in the three months ended Dec. 31, from S$262.7 million a year earlier.
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