Wednesday, January 12, 2011

How CMA can attract more investors

LIVING in the shadow of a famous parent or sibling presents several problems, not least the need to work harder to prove oneself. Unfortunately, this may be the situation CapitaMalls Asia (CMA) is now in.

CMA has been ticking all the right boxes, but investors are still giving it the cold shoulder. One possible explanation is that it is just more compelling for them to buy into its parent CapitaLand or another of the group's unit, CapitaMall Trust (CMT).

Last Tuesday, CMA said it would commit around $2 billion in new projects this year, after investing a similar amount last year. In China alone, it aims to have some 100 malls in the next three to five years, almost double the 53 it now has.

A few days later, the mall developer unveiled plans to raise up to $200 million through a bond offer to fund investments.

Despite the publicity, investors remained pretty unmoved. A day after the $2 billion announcement, CMA's share price rose three cents to hit $1.90. But it has since drifted back down, ending at $1.88 yesterday. This is 11 per cent below its listing price of $2.12. For more than a month, CMA's share price has hovered below $2. It hit a year-low of $1.84 last December.

The languid stockmarket performance is puzzling for a company with a sound brand name, a clear focus on the retail property sector, and a lot of business in fast growing China.

Then again, CMA's parent CapitaLand has most of these qualities too. CapitaLand owns a 65.5 per cent stake in CMA, giving its shareholders meaningful exposure to the retail sector. It also has a considerable presence in China through its residential and hospitality arms.

CapitaLand stands out even more at this point in the economic cycle because of its office and hospitality businesses. These two sectors have gained favour because analysts see them as key beneficiaries of sustained economic growth.

If CapitaLand appeals to investors who like the growth story, then CMT attracts those who prefer stability. The real estate investment trust - which CMA owns 29.8 per cent of - offers not just pure exposure to the retail sector but also regular distributions, at a time when bad economic news still lurks behind every other corner. It looks as if CMA is caught between CapitaLand and CMT, in the middle of the growth-stability spectrum.

There is one way out of this situation. This is for CapitaLand to pare its stake in CMA. Investors might be more persuaded to put their money in CMA if CapitaLand's performance was less tied to it, reducing the overlap in exposure.

Of course, investors could be staying away from CMA for other reasons. Perhaps they are eyeing quicker returns.

Although CMA has been committing big sums of money to new projects, it will not see significant returns until years later. It typically takes two to three years for construction on fresh sites to complete, and another two to three years for income streams to stabilise, before malls can be ready for divestment.

In this way, CMA's business model is quite unlike that of a residential developer. The latter can launch apartments for sale less than a year after buying a site, and start recognising contributions soon after.

Some investors might even think that CMA is not deploying its capital fast enough. As at the third quarter last year, its cash and undrawn facilities added up to over $2 billion. Although the group spent over $700 million acquiring assets towards end-2010, there is still quite a sum left.

On top of that, CMA's coffers could soon gain up to $200 million from the bond offer. Idle cash earns little returns, and the clock is ticking.

It will take time for the results of CMA's latest forays to show. Until then, what it could do to attract more investor attention is, perhaps, to distinguish itself further from other members of the CapitaLand family.

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