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Where next for the CapitaLand share price after S$296 million deal?

CapitaLand Limited’s “asset recycling strategy” has led to the sale of multiple listings globally this year, including its latest, The Star Vista in Singapore. How will share prices be affected?

Source: Bloomberg

Singapore commercial real estate group, CapitaLand Limited (SGX: C31), announced last Wednesday (November 20) its decision to sell off entertainment and leisure hub The Star Vista to Rock Productions for S$296 million.

The sale, targeted for completion by the end of 2019, is expected to generate for CapitaLand net proceeds of approximately S$145 million, and a net gain of approximately S$32 million.

Rock Productions, the business arm of the New Creation Church, already owns concert venue The Star Performing Arts Centre within the same premises.

Part of ongoing “asset recycling strategy”

The divestment is part of CapitaLand’s ongoing strategy to refresh its investment portfolio, which has seen S$5.7 billion worth of assets sold off to date, well above the initial target of S$3 billion.

Earlier this year, the company divested several properties globally, including three malls across China in June, and the Main Airport Centre in Frankfurt a month later.

Not much else has been mentioned at this stage, apart from the fact that the divestment is in line with the company’s “active and disciplined asset recycling strategy”, said Jason Leow, President of Singapore & International, CapitaLand Group.

He added that: “The proceeds from these divestments will enhance CapitaLand’s financial flexibility to seize new growth opportunities.”

Share prices: Immediate reactions

Following Wednesday’s announcement, CapitaLand’s share price fell S$0.06 to a 30-day low of S$3.60 per share on Thursday (November 21) at 10am from its previous close.

Since the price dive during Thursday’s day trading, share prices have fluctuated some more, hovering around the S$3.62 mark, before rebounding to close the week at a more decent mark of S$3.65.

The weekend, however, did little to soften the general uncertainty, as CapitaLand shares traded both bearish and bullish in a mere matter of minutes to open this Monday morning,

Despite the initial trepidation, share prices for the month of November are close to a 12-month peak for the property developer.

What to expect next for investors

Fluctuations are often expected post-announcement, so these latest price developments should not deter budding traders or send existing investors into a panic.

In June this year, prices descended to a six-month low of S$3.21, after the offloading of the China properties.

However, the tepid temperature did not hold water for long, as prices began climbing steadily past the S$3.50 level in the subsequent months.

This is not completely out of left field, especially considering that the divestment strategy is expected to produce larger profits in the long run, than if CapitaLand had held on to the same crop of assets.

Furthermore, the company has also been able to deliver on what the original “recycling” roadmap had indicated – acquiring S$2 billion worth of new assets, and releasing S$2.4 billion of net capital back to the group, since the divestments were introduced.

Still on the positive news front, CapitaLand will continue to manage the China malls post-sale, which will mean sustained revenue generation from those listings, in addition to those arising from the newest acquisition deals.

There was a small snag – in terms of its Q3 2019 financial result which saw net profits drop year-on-year by 7.8% to S$333.9 million from 2018 - though it was hardly a cause for concern originally, as indicated by relatively stable share prices during the week of that announcement.

It is too early to say how prices will move, but what is certain is that the holiday season is around the corner, with a Santa Rally a possibility.

CapitaLand Limited, which has a market capitalisation of S$18.437 billion, continues to be among the most active counters by volume of shares traded on the Singapore Stock Exchange. As at 25th November, Monday 11:30am, 4.524 million stocks have exchanged hands.

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