7 Things To Know About CapitaLand Limited Before You Invest

CapitaLand Limited (SGX:C31) (C31 3.55 +0.02 +0.57%) is one of Asia’s largest real estate companies with a portfolio with S$78 billion. It is listed on the Singapore Exchange. It is also part of the Straits Times Index (STI), as one of the 30 companies that make up the index.

With that, here are 7 things you need to know about CapitaLand Limited

Stock Information

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TICKER SYMBOL: SGX: C31

MARKET CAP: S$15.3 Billion (6th June 2017) 

INDUSTRY: Property

The Business

CapitaLand is an owner and manager of a global property portfolio worth more than S$78 billion as at 31 March 2017. Its portfolio is comprised of integrated developments, shopping malls, serviced residences, offices, homes, real estate investment trusts (REITs) and funds distributed across more than 140 cities in about 30 countries. The Group’s core markets are  Singapore and China. Being one of the largest property company in Southeast Asia, it is also actively expanding in markets such as Vietnam and Indonesia.

CapitaLand’s business has 4 segments;

  • Serviced residences which it operates under the brand names Ascott, Citdines and Somerset,
  • Shopping malls,
  • Commerical & integrated developments,
  • Trading properties (Development).

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Source: Full year 2016 earnings presentation

Shopping Malls

In the shopping mall segment, CapitaLand runs a unique integrated business model encompassing retail real estate investment, development, mall operations, asset management and fund management with a portfolio of 103 malls. Its malls are spanned across 52 cities in Singapore, China, Malaysia, Japan and India. Its shopping malls are run under the CapitaLand Malls brand name which should be familiar to most people staying in Singapore. Most of its malls are REITs such as:

  • CapitaLand Mall Trust (SGX:c38U) (C38U 1.97 +0.02 +1.29%), focusing on Singapore malls,
  • CapitaRetail China Trust (SGX:AU8U0 (AU8U 1.60 +0.02 +1.27%) , focusing on China malls,
  • CapitaLand Malaysia Mall Trust (KLSE:5180) (5180 1.53 0.00 0.00%) , with properties in Malaysia.
Serviced Residence

CapitaLand runs its serviced residence business under The Ascott Limited. It is the leading international serviced residence owner-operators which span over 100 cities across 29 countries. It has over 30,000 operating serviced residence units in key cities of the Americas, Asia Pacific, Europe and the Middle East, as well as over 21,000 units which are under development, making a total of more than 52,000 units in over 300 properties. CapitaLand also runs a serviced residence REIT, Ascott Residence Trust (SGX:A68U) (A68U 1.12 -0.01 -0.88%)  which has a S$4.8 billion asset size. Its portfolio comprises of 90 properties located in 38 cities in 14 countries.

Commercial & Integrated Developments

The commercial and integrated developments segments harness CapitaLand’s expertise across our residential, retail, office and serviced residence business units. One example will be its Raffles City Development, which is a property consisting of retail, office and hospitality elements in it. Also, CapitaLand is one of the leading office owners and managers through its CapitaLand Commercial Trust (SGX:C61U) (C61U 1.65 +0.01 +0.61%) . CapitaLand Commercial Trust has a commercial portfolio of properties, including quality Grade A and other Prime offices. It also owns some integrated developments in Singapore and China.

Trading Properties

Lastly, this is the portion of the business in which CapitaLand builds new homes in Singapore, China and other markets to sell. It is named as trading properties for this very reason as CapitaLand does not intend to hold onto these properties as investments to generate rental income.

Overall Performance

For the fiscal year ended 2016, CapitaLand generated a revenue of $S5.25 billion and a profit of S$834.8 million. Over the past five years, CapitaLand has seen its revenue grew at a compounded annual growth rate of 11.7% while its profits have grown at just 2.4%.

Key Opportunities

Diverse earnings base

CapitaLand’s competitive advantage is its diverse earnings base that it has established by investing in different segments of the real estate sector. It has a significant asset base and extensive market network ranging from shopping malls to commercial assets and even integrated developments which help it generates steady rental income. Apart from rental income, the group also derives earnings from selling homes. This segment of the business allows CapitaLand to earn significant profits when the real estate markets are doing well. On the flip side when the markets are soft (like the current market conditions), CapitaLand can still rely on its rental income to support its profitability and use the opportunity to expand its base.

Growth in China

CapitaLand’s biggest market now is in China.

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Source: Full year 2016 earnings presentation

CapitaLand’s asset base is 44% exposed to the China market. And within the China market, it has exposure to mainly the Tier 1 cities (Attached diagram).  These tier 1 cities are some of the most prominent cites in China. Cities like Beijing and Shanghai are quickly turning into financial hubs and key business cities. These developments could lead to property price increases in the future. Also by having exposure to tier 2 cities early, CapitaLand is positioning itself well for continued growth in the future when Tier 2 cities need to be developed as well.

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Source: Full year 2016 earnings presentation

Key Risks

Overdependence on 2 core markets

The diagram above shows that China and Singapore combined makeup 80% of the asset base of CapitaLand, while there are some positives to this there is also a concentration risk. CapitaLand generates most of the income from these 2 countries, which means any policy changes or instability in these markets can affect the company’s earnings directly. For example, China recently increased its taxes for certain properties and CapitaLand Retail China Trust was hit negatively due to it. As such having over dependence on just two markets might be a risk for investors.

Economic Slowdown

Over the past few years, Singapore’s property prices have been on a down trend due to steep price increases and the government stepping in to prevent a property bubble from forming. There is a similar worry in China as property prices have moved up quickly as well. Put together, this is a risk if either market is to be hit with a recession of falling property prices. CapitaLand’s earnings will be directly hit by its exposure to these markets are too big for it to be offset by other markets.  CapitaLand was also affected by the Singapore government mandate for developers to sell off their units within 5 years from its launch, otherwise they will face hefty penalties.  Property purchases are usually affected in an economic slowdown.

Valuation

CapitaLand currently trades at a Price to Earnings (PE) ratio of 13.6 and spots a 2.5% dividend yield for its investors. That is comparable to its average valuation for the past 5 years, average P/E stood at around 13.7 times while dividend yield was at 2.4%.

Investor Relations

Investor Relation Material:

For Investor Enquiries
Ms Chang Rui Hua
Head, Investor Relations
E-mail: chang.ruihua@capitaland.com

Top Shareholders (2nd August 2016)

    1. Temasek Holdings (Private) Limited 39.57%
    2. Citibank Nominees Singapore Pte Ltd 14.37%
    3. DBS Nominees (Private) Limited 10.49%

Financials

Income Statement

Balance Sheet

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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Ketz’s personal capacity and do not in any way represent those of his employer and other related entities. Ketz does not own any companies mentioned.

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