Developer CapitaLand is offloading its stake in 20 Chinese malls for 8.37 billion yuan (S$1.71 billion) in what analysts see as a timely move to refocus its operations.
China Vanke, its subsidiary SCPG and fund affiliate Triwater are buying the malls. They will also pay US$220.4 million (S$292.3 million) in outstanding shareholder loans on the books of the property holding firms being divested.
CapitaLand management told a briefing yesterday that it is by no means looking to reduce its footprint in China, but rather refocusing its attention away from tier-three cities to its malls in tier-one and tier-two cities.
The offloaded malls were bought more than a decade ago and are small, averaging 40,000 sq m each.
Many have long leases locked in with anchor tenant Walmart, the giant American retailer, which limits the landlord's ability to reposition the malls.
CapitaLand president and group chief executive Lim Ming Yan said it would also cost too much to rejuvenate them.
At the same time, better-quality malls are springing up in the vicinity, though Mr Lim said the CapitaLand centres being sold are well-located in their respective micro-markets.
"Out of the 20 malls, 14 of them are single malls in single cities, so our presence isn't big enough to be able to enjoy enough market influence," he added.
The disposal will allow it to focus on its core cities of Beijing, Shanghai, Guangzhou, Shenzhen, Wuhan, Chongqing and Chengdu.
The group projected that this transaction will generate net proceeds of about $660 million and a net gain of about $75 million.The transaction is targeted for completion in the second quarter of this year.
DBS Bank senior vice-president for group equity research Derek Tan agreed with the management's view that there is "really limited upside" for the portfolio of malls and said this is "an opportune time for CapitaLand to exit".
The news failed to lift CapitaLand's shares, which fell one cent or 0.3 per cent to $3.65, but Mr Tan waved it off as a "weak market day". He finds the sale price attractive - at about 7 per cent above the latest valuation and substantially higher than what CapitaLand paid for the malls.
"CapitaLand... will reap some form of positive carry. It will earn a performance fee, a reward for delivering growth. I think over time, the market will also reward them for it," Mr Tan said.
UOB Kay Hian analyst Vikrant Pandey also saw the move as the developer freeing up capital from some of its older malls that are more challenging for renovations.
"There is a good rationale to sell, and the capital could potentially be used for better purposes," he said.
Once the disposal proceeds are repatriated, CapitaLand will have about $3.66 billion on hand to redeploy into investment opportunities.
Mr Lim said that the capital can go into different asset classes other than malls.
