OCBC Investment Research is keeping its “hold” recommendation on CapitaLand Investment (CLI) with an increased fair value estimate of $4.05 from $3.74 previously as the research team views the stock as a potential beneficiary of China’s faster-than-expected reopening.
According to data from CLI, 35% of its real estate assets under management (AUM) and 31% of its funds under management (FUM) are derived from China, as at Sept 30, 2022. CLI had to defer a sizeable amount of capital recycling activities and fund launches in 2022 due to lockdowns in China. With the loosening of Covid-related controls and reopening of borders, coupled with news from China’s Centre for Disease Control and Prevention that the number of critically-ill Covid-19 cases have fallen 72% from a peak earlier in Jan 2023, the research team believes that this augurs well for the resumption of activities such as the carrying out of due diligence exercises and site tours, while operational performance of retail malls are also expected to improve from here.
As a recap, CLI’s retail and office portfolios in China saw slight negative reversions in 3QFY2022 ended September 2022, with tenants’ sales declining 13.3% y-o-y for 9MFY2022 for its Chinese retail assets.
Outside of China, CLI announced in mid-Dec 2022 that it had entered into a strategic partnership with Ally Logistic Property and Pruksa Holding to establish a $1 billion CapitaLand SEA Logistics Fund. The fund’s objective is to develop smart logistics infrastructure in Southeast Asia. The three partners have committed an initial equity investment of $270 million, with an option to double their investment up to $540 million.
Meanwhile, OCBC is upbeat on the group’s restructuring.
“CLI has emerged as a more nimble and resilient entity following its strategic restructuring, and we believe it would operate with a more asset-light business model with strong focus on recurring income streams,” says the research team, while noting that the management is targeting to achieve $100 billion of FUM by 2024 with a focus on new economy assets, such as logistics and data centre properties.
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Although CLI’s lodging management business was adversely impacted by the pandemic, the research team has started to see a more meaningful recovery, and CLI’s focus is on management and franchise contracts. CLI had about 155,000 lodging units under management, as at Sept 30, 2022, and management aims to grow this to 160,000 units by 2023.
Capital recycling is also expected to remain as one of CLI’s key focuses, with an annual divestment target of $3 billion.
On the other hand, it announced investments with total gross investment value of $5.1 billion during the same period. “We expect management to target more divestments of assets held on its balance sheet in 2023, including to its listed REITs and business trusts and private funds, which would then increase its FUM,” says the research team.
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While the group is focused on growing its portfolio, the research team notes that sustainability initiatives are embedded in every stage of the group’s real estate lifecycle.
Shares in CLI closed at $4.00 on Jan 30.
Photo: CLI
