8 things you need to know about CapitaLand Investment Before Investing

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This stock was recently spun off from CapitaLand Limited and has been trading on the stock market for a little under a year now. CapitaLand owns many properties across Singapore and several properties internationally.

From integrated developments to malls, hotels, and offices, CapitaLand Investment offers investors exposure to various segments of the property sector through the many funds and partnerships it owns. The company is currently going through an asset recycling program where it divests its assets into different funds and uses the proceeds to buy new assets. Could this present an opportunity for investors? Let’s find out.

Stock information

Ticker symbol: 9CI

Market cap: $18.95B

Industry: Real Estate Services

The Business

Celebrating just about a year on the SGX, CapitaLand Investment came from a restructuring of CapitaLand’s business after it was split into 2: CapitaLand Development which is the property development business and now taken private, and CapitaLand Investment, which is the stock we are about to look at.

CapitaLand Investment holds ownership stakes in properties around the world including several integrated developments, malls, lodgings, and business parks, industrial and data centers. The company holds these properties through various trusts and REITs which are broken down below:

Source: CapitaLand’s FY2021 Annual Report.

The company provides a breakdown of its many properties in its Annual Report. Still, some of the properties it owns include Raffles City the Bund in Shanghai, Gurney Plaza in Penang, the International Tech Park Chennai in India, Arlington Business Park in the UK, and the IMM Building in Singapore.

At a glance, CapitaLand Investments holds:

  • Integrated Developments with a total gross floor area (GFA) of 3.3 million sqm, 
  • Malls with a total of 2.9 million sqm of GFA, 
  • and Lodging with a total of over 21,900 units. 
  • Furthermore, the company owns various Business Parks, Industrial, Logistics, and Data Centres with a total GFA of over 11.87 million sqm and Offices with a total of over 780,800 net leasable areas. 

According to their FY2021 Annual Report, CapitaLand classifies its business model into 2 segments: 

  1. Fee-income related business (FRB) – comprises fees received from fund management and lodging businesses,
  2. Real estate investment business (REIB) – the stable flow of rental income from a global portfolio of commercial and lodging assets.

Source: CapitaLand’s FY2021 Annual Report.

Key Opportunities

Asset recycling to improve AUM

The company has announced plans to recycle assets by divesting them into various REITs and private funds in the “CapitaLand ecosystem.” By divesting these assets into other funds, the company can free up cash, and often still hold ownership stakes in the REITs, thus still being involved with the assets they sold. And using the freed-up capital, the company can buy new investments that may produce income, enhancing shareholder value. 

Recovery cycle for all segments

Much of CapitaLand’s assets are in integrated developments, malls, offices, and hotels. Increased business activity, as well as tourism, can greatly help the recovery and growth of all these establishments. As lockdowns ease in various parts of the world, CapitaLand’s assets are poised to benefit from these. Looking at the numbers for the first half of FY2022, operating profit reached S$364M (+31% vs 1st half of FY2021) so for most of their geographies, the company is certainly in a great position to benefit.

Key Risks

Inflation could increase costs

The threat of inflation is looming over many countries in the world as the pandemic reaches its end. This could affect CapitaLand’s performance as labor costs, energy costs, and other input costs could increase. Even if they pass these costs on to customers, this would likely not be enough to offset the effects on profits.

Tight monetary conditions could slow down asset recycling

Another possible consequence of any economic difficulty is the difficulty to recycle assets. CapitaLand currently targets recycling assets of around $3Bn per year and a tight economic environment would hinder their ability to divest assets, slowing down the asset recycling program and weakening the company’s ability to reinvest capital into better projects.

Recession in China

China’s economy may be far from complete demise but it could take a hit after feeling the effects of the Evergrande crisis as well as tightening regulations for real estate developers. Though CapitaLand Investment is not a developer and is more focused on commercial projects than residential projects, it certainly holds a stake in what happens with China as around 19% of FY2021 revenues are from the various integrated developments, hotels, business parks, and malls located in China which the company has stakes in. With China’s already dim economic outlook, the company’s revenues can and will very likely take a hit if a recession takes place in China. The stock’s Chinese exposure may also lead to continued poor sentiment as faith in China’s government and real estate market erodes.

Valuation

As of September 13, 2022, the stock is trading at a TTM PE of 17.86x, a P/BV of around 1x, and is trading at a dividend yield of around 3.23% based on the last year’s dividends. The stock has been listed for less than a year so measuring its average PE may not be particularly valid.

Financials

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Investor Relations

Ms. Grace Chen

Head, Investor Relations

Email: groupir@capitaland.com

Annual Reports:

https://ir.capitalandinvest.com/financial-results.html

Top 5 Shareholders

No. of Shares%
CAPITALAND GROUP PTE. LTD.2,693,106,54952.31
CITIBANK NOMINEES SINGAPORE PTE LTD616,900,21211.98
DBSN PTE. LTD.415k,878,5668.08
RAFFLES NOMINEES (PTE.) LIMITED319,107,3476.20
HSBC (SINGAPORE) NOMINEES PTE LTD279,843,7915.44

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