CapitaMalls could inject fourth asset into a new fund

Analysts see significant upside as its asset pipeline transitions into an income-generating portfolio over FY12.

CMA announced it has established a USD1.0b CapitaMalls China Development Fund III (CMCDF III), which would invest primarily in Chinese retail properties.

CMA would hold a 50% stake with the remainder held by institutional investors from Asia and North America.

CMA would divest three shopping malls, currently under development, as seed assets to CMCDF III. These are CapitaMall Tianfu and CapitaMall Meilicheng in Chengdu, and the Luwan integrated development in Shanghai (still subject to approval).

These would be injected for S$749m, versus their current book value of S$640m. This would result in a net gain of ~S$72m, on a 100% basis for these properties, and a net cash inflow of ~S$335m to CMA for the sale of its stakes.

Following are what analysts have to say about the development.

OCBC Investment Research:

We expect the market to react positively to this development. In our view, divestment valuations are in line with the street’s and our estimates, and would serve as key data-points validating CMA’s asset values in the market.

CMCDF III would also be an option for capital recycling ahead; however, we note divestment targets would likely be assets under development majority owned by CMA, and only Tiangongyuan (Beijing) fits this profile currently. In addition, we expect CMCDF III to be a potential JV partner for future developments, which would give CMA a larger scope for acquisitions.

Nomura:

Besides the three projects that are injected into the fund as seed investments, CMA’s latest project in Beijing (the Tiangongyuan development), which it owns 100%, could also be injected into the fund, in our view, and potentially enhance CMA’s returns.