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On November 16 Sin- gapore-based CapitaMalls Asia ended the bridging period when it was listed on the Hong Kong Stock Exchange and then announced its official launch in the capital market of mainland China.
Apart from this, CapitaMalls Asia also announced that it would invest in building 100 shopping malls in China in the next three to five years. The number is nearly double the current number of projects under its management. Before the announcement, CapitaMalls Asia had just spent a certain amount of capital in purchasing some projects.
On September 28, CapitaMalls Asia signed a conditional agreement with Jinji Lake Urban Development Co., Ltd in the Suzhou Industrial Park. The two parties halved the capital contribution and joined their investment together to build a 310-thousand-suqare-meter commercial property project. The cost of developing this project amounted to 6.74 billion yuan (USD 1.06 billion). CapitaMalls Asia contributed 3.37 billion yuan (USD 530.8 million), accounting for 7.9% of the total value of the property projects CapitaMalls Asia owned by June 30, 2011.
On August 18, CapitaMalls Asia acquired 50% of the equity of Cloud Nine’s shopping malls in Minghang District and Hongkou District. The prices reached 262.6 million U.S. dollars and 526.4 million U.S. dollars respectively. Before that, China Hatch Fund and China Income Fund under CapitaMalls Asia owned 50% of the equities of the Cloud Nine’s shopping malls in Minhang and Hongkou respectively.
At the beginning of this year, CapitaMalls acquired a 66% stake in the project at the juncture of Madang Road and Xujiahui Road. Previously, the project was owned by Morgan Stanley. It is known that CapitaMalls Asia spent 3.86 billion yuan (USD 607.9 million) on the acquisition. Therefore, these three projects cost CapitaMalls Asia 12 billion yuan (USD 1.89 billion) in total.
Fund Acquisition + REITs
Though CapitaMalls Asia spent such a large amount of capital on the abovementioned acquisitions, it has not encountered great stress for its corporate debt and cash flow.
When it was listed in Hong Kong, its president Lim Beng Chi said that the amount of cash the company held by the end of H1, 2011, reached 1.2 billion Singaporean dollars (USD 923.8 million) while its debt only amounted to 800 million Singaporean dollars (USD 615.9 million). Lim Beng Chi also announced that CapitaMalls Asia would spend 2 billion Singaporean dollars (USD 1.54 billion) on acquisitions every year for the next five years. 30% of them will be invested in Singapore. That means a certain part of the remaining 70% will be invested in China.
Actually, the low financing cost of CapitaMalls Asia has become the key to its fast expansion without damaging its financial condition. According to the data, by June 30, 2011, the actual annual interest rate of loans CapitaMalls Asia borrowed from banks was between 1.39% and 6.8%. The actual interest rate of loans with guarantee vouchers was between 4% and 4.5% while the interest rate of loans without guarantee vouchers was 3.95%.
In addition, the annual inter- est rates of the one-year and threeyear bonds CapitaMalls Asia issued through subsidiary companies are 1% and 2.15% respectively, much lower than the domestic property developers’ 10% interest on loans or even illegal loans with extraordinarily high interest rates.
However, CapitaMalls Asia’s consistent assets operation pattern tells us that acquiring projects is only the start.
Presently, CapitaMalls Asia owns and manages 54 property projects in China. But only a few of them are directly controlled by CapitaMalls Asia. The other projects are controlled by the following entities: four private equity funds under CapitaMalls Asia– China Income Fund, China Development Fund II, China Hatch Fund and Rifles China Fund, as well as the Real Estate Investment Trust named CapitaRetail China Trust, which went public in Singapore in 2006.
By the end of the first half of 2011, CapitaMalls Asia owned a 45% stake in China Income Fund, a 45% stake in China Development Fund II, a 30% stake in China Hatch Fund’s and a 15% stake in Rifles China Fund. In addition, it owns a 26.97% stake in CapitaRetail China Trust.
CapitaMalls Asia acquires and fosters property projects via its private equity funds. When the projects develop to a certain level that can produce stable cash flows, CapitaMalls Asia agglomerates these projects or quits them via REITs (Real Estate Investment Trust). This is the core of its capital operations. Each deal will bring the company a premium price, which is the source of its profits.
According to the research of Bank of Overseas Chinese, by the end of its 2011 financial year, 59% of CapitaMalls Asia’s projects will be shopping malls that have been put into operation. But by the end of November, 2011, the proportion was only 35%. This means that more projects need to be put into operation to release the company from the depressed return on assets. But this will bring bigger stress over CapitaMalls Asia when it agglomerates the projects owned by private equity funds or arbitrage by quitting these projects through trust.
With the aforementioned pattern, CapitaMalls Asia used to be unrivalled in the Chinese commercial property market and greatly admired by its Chinese peers. However, right now it has to confront with rivals.
This June, Perennial China Retail Trust went public in Singapore. It bears the name of the “first Singapore-based real estate development trust that specializes in China”. Perennial’s operation pattern is the same as CapitaMalls Asia.
The first batch of projects Perennial owns in China include five commercial real estate projects – Cloud Nine Shopping Center in Shenyang, Liaoning, Red Star Macalline Cloud Nine Center, Cloud Nine Office Building, Qingyang Guanghua Shopping Mall in Chengdu, Sichuan and Cuiyu Shijia Shopping Mall in Foshan, Guangdong. Among them, the Cloud Nine Shopping Center in Shenyang and the Red Star Macalline Cloud Nine Center have already been put into operation while the others are under development. In addition, Perennial also signed a contract with Summit Property Development, the developer of Cloud Nine projects and own the option to buy 50% of the equities of Cloud Nine projects in Xi’an, Chengdu and Changsha.
Coincidentally, after CapitaMalls Asia acquired two Cloud Nine projects in Shanghai in August, Perennial put forward its plan of acquiring a 50% stake in a comprehensive shopping mall in Chengdu with 2.28 billion yuan (USD 359.1 million).
It is not surprising to have two Singapore-based companies competing in China. It is known that the founder of Perennial Pua Seck Guan was once the president of CapitaMalls Asia. In addition, he is the inventor of the operational pattern combining“private equity and REITs”.
Pua Seck Guan joined CapitaLand, parent company of CapitaMalls Asia in 2000 and resigned in November 2008. During his stay he promoted the IPO of CapitaRetail Commercial Real Estate Trust, which was the first REIT in Singapore. His resignation led to the 300-million-Singaporeandollar loss of CapitaRetail Commercial Real Estate Trust’s market value within one day – the biggest one-day drop after it went public in 2002. That demonstrated how important Pua Seck Guan was for the company.
Actually, the Retail Trust Pua Seck Guan launched this time was slightly different from REITs. The latter can only have 10% of its assets put into the development of projects and needs to distribute 90% of its profits to shareholders. The Retail Trust has no similar limitation and is able to be more intensively involved in the development of projects. In other words, the Retail Trust has combined the features of a private equity fund and REITs.
With the coming of Perennial, the retailing real estate industry in China may receive more retail trust companies. An analyst pointed out that the trust companies could put more money into the development of projects and have flexible rules of allocating profits. Their engagement in China’s retailing real estate market is not limited to acquiring established projects.
Apart from this, CapitaMalls Asia also announced that it would invest in building 100 shopping malls in China in the next three to five years. The number is nearly double the current number of projects under its management. Before the announcement, CapitaMalls Asia had just spent a certain amount of capital in purchasing some projects.
On September 28, CapitaMalls Asia signed a conditional agreement with Jinji Lake Urban Development Co., Ltd in the Suzhou Industrial Park. The two parties halved the capital contribution and joined their investment together to build a 310-thousand-suqare-meter commercial property project. The cost of developing this project amounted to 6.74 billion yuan (USD 1.06 billion). CapitaMalls Asia contributed 3.37 billion yuan (USD 530.8 million), accounting for 7.9% of the total value of the property projects CapitaMalls Asia owned by June 30, 2011.
On August 18, CapitaMalls Asia acquired 50% of the equity of Cloud Nine’s shopping malls in Minghang District and Hongkou District. The prices reached 262.6 million U.S. dollars and 526.4 million U.S. dollars respectively. Before that, China Hatch Fund and China Income Fund under CapitaMalls Asia owned 50% of the equities of the Cloud Nine’s shopping malls in Minhang and Hongkou respectively.
At the beginning of this year, CapitaMalls acquired a 66% stake in the project at the juncture of Madang Road and Xujiahui Road. Previously, the project was owned by Morgan Stanley. It is known that CapitaMalls Asia spent 3.86 billion yuan (USD 607.9 million) on the acquisition. Therefore, these three projects cost CapitaMalls Asia 12 billion yuan (USD 1.89 billion) in total.
Fund Acquisition + REITs
Though CapitaMalls Asia spent such a large amount of capital on the abovementioned acquisitions, it has not encountered great stress for its corporate debt and cash flow.
When it was listed in Hong Kong, its president Lim Beng Chi said that the amount of cash the company held by the end of H1, 2011, reached 1.2 billion Singaporean dollars (USD 923.8 million) while its debt only amounted to 800 million Singaporean dollars (USD 615.9 million). Lim Beng Chi also announced that CapitaMalls Asia would spend 2 billion Singaporean dollars (USD 1.54 billion) on acquisitions every year for the next five years. 30% of them will be invested in Singapore. That means a certain part of the remaining 70% will be invested in China.
Actually, the low financing cost of CapitaMalls Asia has become the key to its fast expansion without damaging its financial condition. According to the data, by June 30, 2011, the actual annual interest rate of loans CapitaMalls Asia borrowed from banks was between 1.39% and 6.8%. The actual interest rate of loans with guarantee vouchers was between 4% and 4.5% while the interest rate of loans without guarantee vouchers was 3.95%.
In addition, the annual inter- est rates of the one-year and threeyear bonds CapitaMalls Asia issued through subsidiary companies are 1% and 2.15% respectively, much lower than the domestic property developers’ 10% interest on loans or even illegal loans with extraordinarily high interest rates.
However, CapitaMalls Asia’s consistent assets operation pattern tells us that acquiring projects is only the start.
Presently, CapitaMalls Asia owns and manages 54 property projects in China. But only a few of them are directly controlled by CapitaMalls Asia. The other projects are controlled by the following entities: four private equity funds under CapitaMalls Asia– China Income Fund, China Development Fund II, China Hatch Fund and Rifles China Fund, as well as the Real Estate Investment Trust named CapitaRetail China Trust, which went public in Singapore in 2006.
By the end of the first half of 2011, CapitaMalls Asia owned a 45% stake in China Income Fund, a 45% stake in China Development Fund II, a 30% stake in China Hatch Fund’s and a 15% stake in Rifles China Fund. In addition, it owns a 26.97% stake in CapitaRetail China Trust.
CapitaMalls Asia acquires and fosters property projects via its private equity funds. When the projects develop to a certain level that can produce stable cash flows, CapitaMalls Asia agglomerates these projects or quits them via REITs (Real Estate Investment Trust). This is the core of its capital operations. Each deal will bring the company a premium price, which is the source of its profits.
According to the research of Bank of Overseas Chinese, by the end of its 2011 financial year, 59% of CapitaMalls Asia’s projects will be shopping malls that have been put into operation. But by the end of November, 2011, the proportion was only 35%. This means that more projects need to be put into operation to release the company from the depressed return on assets. But this will bring bigger stress over CapitaMalls Asia when it agglomerates the projects owned by private equity funds or arbitrage by quitting these projects through trust.
With the aforementioned pattern, CapitaMalls Asia used to be unrivalled in the Chinese commercial property market and greatly admired by its Chinese peers. However, right now it has to confront with rivals.
This June, Perennial China Retail Trust went public in Singapore. It bears the name of the “first Singapore-based real estate development trust that specializes in China”. Perennial’s operation pattern is the same as CapitaMalls Asia.
The first batch of projects Perennial owns in China include five commercial real estate projects – Cloud Nine Shopping Center in Shenyang, Liaoning, Red Star Macalline Cloud Nine Center, Cloud Nine Office Building, Qingyang Guanghua Shopping Mall in Chengdu, Sichuan and Cuiyu Shijia Shopping Mall in Foshan, Guangdong. Among them, the Cloud Nine Shopping Center in Shenyang and the Red Star Macalline Cloud Nine Center have already been put into operation while the others are under development. In addition, Perennial also signed a contract with Summit Property Development, the developer of Cloud Nine projects and own the option to buy 50% of the equities of Cloud Nine projects in Xi’an, Chengdu and Changsha.
Coincidentally, after CapitaMalls Asia acquired two Cloud Nine projects in Shanghai in August, Perennial put forward its plan of acquiring a 50% stake in a comprehensive shopping mall in Chengdu with 2.28 billion yuan (USD 359.1 million).
It is not surprising to have two Singapore-based companies competing in China. It is known that the founder of Perennial Pua Seck Guan was once the president of CapitaMalls Asia. In addition, he is the inventor of the operational pattern combining“private equity and REITs”.
Pua Seck Guan joined CapitaLand, parent company of CapitaMalls Asia in 2000 and resigned in November 2008. During his stay he promoted the IPO of CapitaRetail Commercial Real Estate Trust, which was the first REIT in Singapore. His resignation led to the 300-million-Singaporeandollar loss of CapitaRetail Commercial Real Estate Trust’s market value within one day – the biggest one-day drop after it went public in 2002. That demonstrated how important Pua Seck Guan was for the company.
Actually, the Retail Trust Pua Seck Guan launched this time was slightly different from REITs. The latter can only have 10% of its assets put into the development of projects and needs to distribute 90% of its profits to shareholders. The Retail Trust has no similar limitation and is able to be more intensively involved in the development of projects. In other words, the Retail Trust has combined the features of a private equity fund and REITs.
With the coming of Perennial, the retailing real estate industry in China may receive more retail trust companies. An analyst pointed out that the trust companies could put more money into the development of projects and have flexible rules of allocating profits. Their engagement in China’s retailing real estate market is not limited to acquiring established projects.