Earnings Report /
Singapore

CapitaLand Investment Ltd: Charting new growth

  • Stable and recurring revenues from fees income and real estate investment contributing

  • Initiate coverage on CLI with an ACCUMULATE rating and SOTP derived TP of S$4.00

  • CLI is trading at 16.0x P/E; we are forecasting FY21e dividend yield of 2.4%

Natalie Ong Pei Fong
Natalie Ong Pei Fong

Equity Research Analyst- Property & REITs

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PhillipCapital
19 October 2021
Published byPhillipCapital

Investment Thesis

1.     Stable and recurring revenues from fees income and real estate investments (Figure 1). These segments contribute c.20% and c.80% of EBITDA respectively. Approximately 80% of fee income from the fund management is recurring in nature while the lodging platform generates franchising and management fees from predominantly 3rd party-owned assets. Income generating assets held by CLI is also expected to deliver highly visible cashflows.

2.     Growth in fund management and lodging AUM to drive fee income. CLI has made great headway towards hitting its 2024 funds under management (FAUM) target of S$100bn. Two new senior hires, Mr Simon Treacy and Mr Patrick Boocock, have been brought on to spearhead the growth of private funds. The lodging platform also on track to surpass its 2023 target of 160K keys under management. CLI signed 8.3K keys in 8M21, bringing the number of keys to 130.9K, of which, c.40% are still under development and have not begun contributing to revenue.

3.     Divestment targets channelled into new economy sectors. CLI remains committed to its S$3bn divestment target, which will help replenish dry powder to be reinvested into new economy assets such as logistics, data centres, business parks, as well as lodging assets like PBSA and multifamily assets which provide stable returns. This helps to better diversify and keep the portfolio future ready.

Segmental Breakdown

CLI’s revenue is categorised into fee-income and real estate investment.

1. Investment Management

FAUM has grown at 5-year CARG of 11% (Figure 2), largely attributed to the growth in listed funds AUM and the acquisition of Ascendas-Singbridge. CLI is still S$17bn shy of its 2024 FAUM target of S$100bn. Going forward, CLI hopes to capture private capital demand for real estate products via its private funds. CLI has brought on two new senior hires to spearhead the growth in private funds.

 

§ Mr Simon Treacy has been appointed as CEO of Private Equity Real Estate. Formerly the CIO of Global Real Estate at Blackrock and CEO of Macquarie Global Property Advisors, Mr Treacy brings with him more than 23 years of real estate experience.

 

§ Mr Patrick Boocock will join CLI as the CEO of Private Equity Alternative Assets, bringing with him more than 20 years of investment management experience. Previously the Managing Partner and Head of Asia at Brookfield Asset Management, Mr Boocock’s expertise in alternative assets spans real estate, infrastructure, renewable energy and private equity.

 

In June 2021, CLI obtained its registered Private Equity Fund Manager status in China, which will allow it to carry out RMB-denominated capital raising. The group aims to launch its first RMB-denominated fund product in 4Q21. CLI launched two funds YTD; a S$400mn CapitaLand India Logistics Fund II in May21 and its second Korea Data Centre Fund in Jun21 raising S$400mn from third party investors.

 

We value the fund management business using the P/E given the stability of fee income, applying a 16x P/E multiple, the average amongst comaprable real estate investment manager peers, which have traded between 12.3x-25.1x P/E pre-pandemic.