Should Shareholders of CapitaMalls Asia Cash-Out With The Latest Takeover Offer By CapitaLand?

CapitaMalls Asia (SGX: JS8) announced earlier in the afternoon today that its parent, one of Asia’s largest real estate outfits, CapitaLand (SGX: C31), has offered to take it private at S$2.22 per share in cash in a voluntary offer. At CapitaMalls Asia’s share price of S$1.805 based on last Friday’s close, CapitaLand’s privatisation offer represents a 23% premium.

At present, CapitaLand owns 65.3% of CapitaMalls Asia and the offer’s for the rest of the latter that CapitaLand does not yet own. The offer’s also conditional on CapitaLand receiving acceptances from CapitaMalls Asia’s other shareholders during the offer period such that CapitaLand would end up holding more than 90.0% of its 65.3%-owned subsidiary. The offer document would be sent to CapitaMalls Asia’s shareholders within 21 days from today and the offer period would cease 28 days after the offer document’s being sent.

Since its listing on 25 Nov 2009 at an offering price of S$2.21, shareholders of CapitaMalls Asia have seen the company’s shares spend most of its time sitting below S$2.21. With its current share price of S$1.805, early investors of CapitaMalls Asia are actually looking at a decline of 18.3% from its IPO price even as the broader market, as represented by the Straits Times Index (SGX: ^STI), has gone up by 15% to its current level of 3,214 points.

So, shareholders of the shopping mall developer, owner, and manager who bought during the IPO and held on till now would certainly not have much to show for in terms of returns. That said, from a business perspective, CapitaMalls Asia has been a much less disappointing investment.

For instance, earnings have grown from S$0.139 per share in 2010 to S$0.154 in 2013 while dividends have gone up with each consecutive year, from S$0.02 per share in 2010 to S$0.035 in 2013. The company’s per-share book value, a good rule-of-thumb for the intrinsic value of real estate companies, has also gone up with each consecutive year from S$1.50 in 2010 to S$1.84 in 2013.

CapitaLand’s offer price is some 21% higher than CapitaMalls Asia’s current book value and could perhaps be taken as a sign of the parent’s faith in the value of the subsidiary’s business and assets.

Based on CapitaMalls Asia’s latest financials, the company has operations in Singapore, China, Malaysia, Japan, and India (with the first two countries being its core market) with a total of 85 operational retail properties as of the end of 2013 and a pipeline of 20 additional malls which are targeted to be opened in the future. Key operational stats like shopper traffic, occupancy rates, tenants’ sales, and net property income yields have all grown in 2013 as compared to 2012 for Singapore and China, its key markets. Meanwhile, CapitaMalls Asia’s peripheral markets had also shown growth in most of these operational statistics.

For investors who believe in the economic well-being of the company’s key markets and spending habits (such as the preference for shoppers to head to retail malls versus shopping online) of the countries’ people, CapitaLand’s current offer would present a nice headache.

On one hand, investors can realise quick capital gains assuming they’ve bought at prices way below CapitaMalls Asia’s IPO price. On the other hand, there’s the possibility that CapitaMalls Asia’s intrinsic value could be much higher than what CapitaLand’s offering based on its future growth. But, that would ultimately have to depend on the investor’s own judgement.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.