Company Reports

CapitaLand Investment, or CLI, is divesting its 50% interest in ION Orchard to its sponsored REIT, CapitaLand Integrated Commercial Trust, or CICT, for SGD 1.1 billion. The divestment will take the group’s year-to-date total capital recycling to SGD 3.6 billion, surpassing its annual capital recycling target of SGD 3 billion. Management shared that the divestment proceeds will be used to further diversify its portfolio across geographies and asset classes, as well as to establish new fund products to boost its fee-related income. Given that ION Orchard is a high-quality retail asset located in the heart of Singapore’s key retail district, Orchard Road, we are positive about this divestment as it allows the group to unlock value from the asset. In addition, CLI will continue to earn recurring fee income and retain some exposure to the mall’s performance through its 24% stake in CICT. To complete this acquisition, CICT is raising SGD 1.1 billion through an equity fundraising exercise. CLI has undertaken to fully subscribe to its portion in the preferential offering, underscoring its support for the trust. On the pricing front, we think the group is selling to CICT at a fair price. Based on the 7.1% gross yield shared by CICT’s management, we estimate that the net property income yield is around 5%, comparable with CBRE’s retail prime yield of 5.2% as of June 30, 2024.

CapitaLand Investment’s first-half 2024 performance was broadly in line with our expectation. Operating profit after tax and minority interest fell 14% year on year due to weaker contribution from its real estate investment business, slightly offset by higher fee income. We raised our share of results from associates and joint venture for the group’s newly raised funds and operating income forecasts to reflect higher portfolio gains from the group’s asset divestment and participation in its REITs distribution reinvestment plan. As a result, our earnings per share, or EPS, estimates for 2024-26 were raised by 8.0% to 11.4%. However, we lowered our fair value estimate to SGD 3.30 per share from SGD 3.50 after increasing our WACC to 6.9% from 6.6% to reflect the group’s exposure in China, India, and rest of Southeast Asia, which we estimate to contribute close to 50% of its assets under management. Based on current prices, we think the group is undervalued. However, our top pick for alternative asset managers is Keppel Ltd for its exposure to the more resilient infrastructure and connectivity space.

CapitaLand Investment, or CLI, is a real estate investment management company with SGD 134 billion in total assets under management as of June 30, 2024. Currently, the firm generates most of its income from direct real estate investment where it invests in a portfolio of office, retail, lodging, logistics, business parks and data center assets for rental income. CLI also collects management fees and distribution income from the listed vehicles and private funds it manages. Around 60% of the funds under management, or FUM, comprises listed REITs such as CapitaLand Integrated Commercial Trust, CapitaLand Ascendas REIT, and CapitaLand Ascott Trust. CLI has set a target to achieve SGD 200 billion of FUM by 2028, up from SGD 99 billion at the end of 2023.

We retain our fair value estimate of SGD 3.50 per share for CapitaLand Investment after its in line first-quarter 2024 business update. We think the shares are undervalued currently but prefer narrow-moat ESR Group, an alternative asset manager that is trading at a deeper discount to our fair value estimate. We anticipate the elevated interest-rate environment will continue to be a near-term headwind for alternative asset managers, making it difficult for them to raise funds and scale up their business.

CapitaLand Investment, or CLI, is a real estate investment management company with SGD 134 billion in total assets under management as of Dec. 31 2023. Currently, the firm generates most of its income from direct real estate investment where it invests in a portfolio of office, retail, lodging, logistics, business parks and data center assets for rental income. CLI also collects management fees and distribution income from the listed vehicles and private funds it manages. Around 60% of the funds under management, or FUM, comprises listed REITs such as CapitaLand Integrated Commercial Trust, CapitaLand Ascendas REIT, and CapitaLand Ascott Trust. CLI has set a target to achieve SGD 200 billion of FUM by 2028, up from SGD 99 billion at the end of 2023.

Our fair value estimate of CapitaLand Investment, or CLI, remains at SGD 3.50, with our long-term view unchanged despite disappointing 2023 results that were negatively affected by the high interest rate environment. The group's revenue was in line with our expectations, but net profit fell 79% year on year due to SGD 599 million of fair value losses for its properties in China and the US. CLI maintained dividend per share of SGD 0.12, implying a dividend yield of 4.3% based on its last closing price of SGD 2.78 per share. While we do not expect the group to cut dividends through our forecast period, we think CLI's ongoing shift to an asset-light model will continue to impede earnings, as the gain in management fees cannot fully offset the loss in contribution of divested assets. Our top pick among real estate asset managers is ESR Group, which is currently trading at a more attractive valuation of 0.59 times our fair value estimate. We think that the business environment for real estate asset managers will improve in the second half of 2024 given expected rate cuts in the US.

We resume coverage of CapitaLand Investment, or CLI, with a no-moat rating and a fair value estimate of SGD 3.50 per share. This implies a 2024 price/book ratio of 0.96 times and a price/earnings ratio of 30 times. We expect the firm to continue its shift to an asset-light model, by divesting or injecting its investment properties held on its balance sheet into its managed funds. However, we think the shift will impede earnings growth for the firm during our forecast period as the gain in management fees cannot fully offset the loss in contribution of divested assets. That said, we expect the firm’s recurring fee income and rental income to underpin a steady earnings profile through economic cycles. We think the shares are currently undervalued as it trades at a 13% discount to our fair value estimate. We like its fund management business which enables it to retain long-term operational control of its assets while capturing recurring fee income.

CapitaLand Investment, or CLI, is a real estate investment management company with SGD 133 billion in total assets under management as of Sept. 30 2023. Currently, the firm generates most of its income from direct real estate investment where it invests in a portfolio of office, retail, lodging, logistics, business parks and data center assets for rental income. CLI also collects management fees and distribution income from the listed vehicles and private funds it manages. Around 80% of the funds under management comprises listed REITs such as CapitaLand Integrated Commercial Trust, CapitaLand Ascendas REIT, and CapitaLand Ascott Trust. As for its lodging management business, CLI does not directly own most of the properties and manages the units through management contracts and franchise agreements. CLI operates the lodging management business across multiple brands and has steadily ramped up its lodging business in recent years with a target of achieving a lodging management fee revenue of SGD 500 million by 2028 from SGD 258 million at the end of 2022.

We are placing CapitaLand Investment under review pending a change in analyst. We will provide further updates on coverage resumption in January 2023.

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.

CapitaLand Investment’s first-half result was weaker, with slower asset recycling resulting in profit after tax and minority interest declining 38% year on year to SGD 433 million. Excluding the portfolio gains, revaluation and impairment, underlying operating profit after tax and minority interest increased 24% to SGD 358 million. The share price reacted negatively to the result, which in our view, is attributable to the flat assets under management, or AUM, of SGD 86 billion, on the first quarter and the end of last year, and also the outlook of AUM growth. We note the flat AUM was skewed by the closure of a Vietnam fund, at positive internal rate of return. Committed capital of SGD 3.5 billion should take total AUM to SGD 89.5 billion. Management noted that AUM growth of 10% may not be achieved for the full year as the market conditions remain challenging in mainland China, despite some relaxation policies in the real estate sector. The increase in AUM is likely to be deferred to 2023 though, and China's policy relaxation in the second half of 2022 could also see some catch-up in capital recycling. Revenue from funds management increased by 21% on the same period last year to SGD 238 million. Average fee on AUM increased by 1 basis point on last quarter, or 2 basis points on last year to 52 basis points.

CapitaLand Investment, or CLI, is a real estate investment management company with two divisions in funds management and real estate investments. Post restructuring in 2021, the capital-heavy property development was privatized into CapitaLand Development, or CLD. In our view, the restructuring has unlocked value for shareholders with the company’s share price discount having narrowed toward our fair value. We believe CLI’s asset-light model is expected to see the group share price re-rate, in line with international peers. CLI’s footprint is mainly in Singapore and China, consisting close to 80% of funds under management. Property type is spread more evenly across retail, integrated development, office, lodging and new economy properties such as industrial and logistics, business parks, and data centers.

No-moat CapitaLand Investment’s, or CLI's, first-quarter result was in line with our expectation and the group’s diversification across property types and geographies was reflected in this result. First-quarter fee income related business revenue increased by 17% against the same period last year, while the real estate investment business saw a 28% increase in revenue. Both are tracking in line with our full year forecast and our estimates and fair value estimate of SGD 4.05 are unchanged. Net debt to equity was steady at 0.48 times and lower at 0.38 times excluding the consolidated investment vehicles. The low gearing provides ample capacity for CLI to make opportunistic acquisitions and a strong credit profile should see the group continue to benefit from lower financing cost relative to peers in a rising interest rate environment.

CapitaLand Investment, or CLI, is a real estate investment management company with two divisions in funds management and real estate investments. Post restructuring in 2021, the capital-heavy property development was privatized into CapitaLand Development, or CLD. In our view, the restructuring has unlocked value for shareholders with the company’s share price discount having narrowed toward our fair value. We believe CLI’s asset-light model is expected to see the group share price re-rate, in line with international peers. CLI’s footprint is mainly in Singapore and China, consisting close to 80% of funds under management. Property type is spread more evenly across retail, integrated development, office, lodging and new economy properties such as industrial and logistics, business parks, and data centers.

Our fair value estimate for CapitaLand Investment is revised higher to SGD 4.05 per share from SGD 3.75 after its solid 2021 result. Revenue was slightly ahead of our expectation as the group increased funds under management by 10%. There is no change in management's target of SGD 100 billion under management by 2024 and we continue to assume the target is achievable. Funds under management were SGD 86 billion at the end of 2021 and the 2024 target reflects an annual increase of close to 9% for the next two years.

It was a short quarter for CapitaLand Investment, or CLI, since its listing in September, but the company is executing on its strategy in growing its funds management platform, its lodging business, and in recycling capital. Along with a brief third-quarter business update, CLI is expected to launch two Japan private funds, holding two commercial properties in Japan at a valuation of SGD 537.7 million. Each of the funds hold a 50% stake in Yokohama Blue Avenue, previously owned by CLI. In addition, one of the funds is expected to hold a 20% stake in Shinjuku Front Tower. In line with one positive from CLI’s restructuring, CLI is only retaining a minority interest of 4.98% in the fund. The lower level of commitment allows CLI to redirect capital for growth initiatives. Similarly, for a newly launched Korea fund, CLI will hold a 5% stake and the balance will be from partner PGIM Real Estate. The fund will acquire two cold storage logistics properties with SGD 150.3 million under management. Both properties are operating with long-term master leases to a food wholesaler Foodist.

CapitaLand Investment, or CLI, is a real estate investment management company with two divisions in funds management and real estate investments. Post restructuring in 2021, the capital-heavy property development was privatized into CapitaLand Development, or CLD. In our view, the restructuring has unlocked value for shareholders with the company’s share price discount having narrowed toward our fair value. We believe CLI’s asset-light model is expected to see the group share price re-rate, in line with international peers. CLI’s footprint is mainly in Singapore and China, consisting close to 80% of funds under management. Property type is spread more evenly across retail, integrated development, office, lodging and new economy properties such as industrial and logistics, business parks, and data centers.

We are initiating coverage of CapitaLand Investment Limited, or CLI, with a fair value estimate of SGD 3.75 per share. CLI is a real estate investment management company with two main divisions in funds management and real estate investments. Post restructuring, the capital-heavy property development was privatized into CapitaLand Development, or CLD, and further transition to an asset-light model is expected to see the group share price re-rate, in line with international peers. This may take time though, as real estate investment income currently makes up 85% of operating income. In our view, the key positive driver is an acceleration of funds under management growth, particularly the launch of new funds investing in new economy property types in business parks, data centers and logistics. New economy property types, structured as private funds, attract higher management fees relative to traditional property types in malls and offices. For CLI, a large proportion of funds under management are listed REITs, comprising lower average base fees compared to private vehicles.