CapitaLand Investment’s Q3 Results Positive As Deals Slowly Return in the China Real Estate Market

CapitaLand Investment’s, or CLI's, third quarter was positive, with strong performance across most operational segments. Year-to-September lodging management and real estate investment business revenues are slightly above our expectations. We believe the positive share price reaction after the results was attributable to an improved outlook on traveling demand and more importantly, an appetite for real estate transactions in mainland China and supportive of asset under management increase for the fund management business. Two new Chinese yuan denominated funds were recently established onshore, open to domestic investors. The latter includes a broad range of domestic investors, including trust companies, securities firms and insurers. CLI is the manager of both assets and the funds, with capital commitment ranging from 10% to 20%. The minority stakes are reflective of CLI's new business model after delisting. Another deal reflective of this is a partnership with Dutch pension fund APG in investing in self-storage operator Extra Space, where capital commitment from CLI is 10%. APG’s initial equity investment of SGD 570 million can be scaled up to SGD 1.14 billion, with CLI’s management expecting its firm’s reach in the region to help grow the business. By partnering with a pension fund of APG’s caliber, management believes this deal will open up opportunities with other large pension and sovereign wealth funds internationally. Our fair value estimate of SGD 4.05 is unchanged and we see the firm as undervalued. We remain positive on the firm’s ability to attract external capital, supported by the group’s experience and broad reach in the region.