Capitaland’s sale of 20 China malls

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Capitaland china

Capitaland today announced their sale of 20 China malls to Vanke, SCPG (a subsidiary of Vanke) and Triwater, an affiliate of a fund.


According to their presentation slides, Capitaland Mall’s move is based on 4 strategies.

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  1. Active reconstitution efforts to optimize their portfolio
  2. Focus on dominant malls in core city clusters
  3. Grow strong recurring income combining quality owned assets and 3rd party management contracts
  4. Transforming their mall portfolio into “The Future of Retail”

In their slides, they point out that the portfolio being divested comprises of the holding companies of 20 malls across 19 cities.

The 20 malls are as follows.

Mall and City
1 CapitaMall Beiguan / Anyang
2 CapitaMall Chengnanyuan / Nanchang
3 CapitaMall Cuiwei / Beijing
4 CapitaMall Deyang / Deyang
5 CapitaMall Dongguan / Dongguan
6 CapitaMall Guicheng / Foshan
7 CapitaMall Jinshui / Zhengzhou
8 CapitaMall Jiulongpo / Chongqing
9 CapitaMall Maoming / Maoming
10 CapitaMall Nan’an / Yibin
11 CapitaMall Quanzhou / Quanzhou
12 CapitaMall Shapingba / Chongqing
13 CapitaMall Shawan / Chengdu
14 CapitaMall Taohualun / Yiyang
15 CapitaMall Weifang / Weifang
16 CapitaMall Yangzhou / Yangzhou
17 CapitaMall Zhangzhou / Zhangzhou
18 CapitaMall Zhanjiang / Zhanjiang
19 CapitaMall Zhaoqing / Zhaoqing
20 CapitaMall Zibo / Zibo

Each mall has an average gross floor area, excluding car park, of about 40,000 square metres.

The total agreed property value is RMB 8.4b or S$1.7b.

This is higher than the valuation of RMB 7.8b or S$1.6b, indicating that Capitaland sold at 6.7% above valuation.

Given the 3rd Tier location of many of these malls, I think Capitaland has made a prudent move to divest these malls and re-focus their energies on Tier 1 & 2 cities.


While it can be said that Tier 1 & 2 cities are more developed and have less room for growth, I think the safer move right now is for the company to steer clear of areas in Tier 3 cities where there is potential mall oversupply.

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The sale translates into net proceeds of S$660m after paying off debt and various liabilities, and a net gain of S$75m.

According to Capitaland’s slides, the portfolio was held for about 10 years, and comprised 4% of total mall’s and 7% of China mall’s property value.

For investments in China, most foreign firms have a cash trap issue so going forward, I think Capitaland may recycle most of this capital back into the country. Some of it can’t be taken out anyway, and if it can, it may be subject to various taxes.

For those who do not know what is trapped cash, it simply is what it means – cash that is trapped in the country.

According to S.J. Grand, a financial and tax advisory firm, trapped cash (in this case of China) arises because of

  1. Profit made by a China company in a year can’t be distributed to an offshore company until historical losses are erased. i.e. If 2017 is a profitable year for the China company, but it has racked up losses prior to 2017, the ‘hole’ must be filled before anything leftover can be distributed to Capitaland parent company in Singapore.
  2. Dividends can still not be paid directly on the accumulated profit. The company first needs to pay the Corporate Income Tax (CIT) on this one, which is 25% of its value. The FIE should then place 10% of what’s left into a reserve fund, until this fund reaches 50% of the FIE Registered Capital (RC). Note that it means that an amount of your profit, equivalent to half your RC, will be stuck in China forever. After allocating this part of the profit, the amount left is the Maximum Distributable Dividends.

After the transaction, the number of malls in Tier 1 & 2 cities will fall from 51 to 45, while the number of Tier 3 city malls will fall from 18 to 4.

This means that 14 of the 20 sold malls are in Tier 3 and 6 are in Tier 1 and 2.

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This reflects Capitaland’s strategy to focus on malls in Tier 1 and 2 cities.


Even though Capitaland will have the proceeds and firepower to sniff out investment opportunities, I personally feel that they may have more luck in Tier 2 cities where prices are not very elevated.

For example, property yields in Guangzhou and Shenzhen (which are Tier 1 cities) are in the 2% range which is a historic low.

After the sale, Capitaland will focus on five core city clusters in China, namely Beijing/Tianjin, Shanghai/Hangzhou/Suzhou/Ningbo, Guangzhou/Shenzhen, Chengdu/Chongqing/Xi’an and Wuhan.

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