DBS Group Research 2015-07-14: CapitaLand - Capturing opportunities, boosting returns. Maintain BUY.

Capturing opportunities, boosting returns 

  • Leveraging on entrenched fund management platform to grow AUM by S$8-10bn by 2020 
  • Kick-start with a new US$600m JV with Qatar Investment Authority 
  • BUY call, TP of S$4.11 based on 20% discount to RNAV 

Reaffirming the group’s focus on growing its established AUM Business. 

  • CapitaLand Limited (CAPL) aims to launch 5-6 private equity funds with assets under management (AUM) of S$8-10bn by 2020. 
  • Leveraging on its established fund management competencies, CAPL will partner with increasingly sophisticated capital partners who are looking to deploy capital in the region. 
  • We believe that CAPL is in a position of strength to deliver, given its entrenched real estate management platform totaling S$43.5bn AUM across 16 non-listed real estate funds and five REITs. 

Fund Management platform expected to boost risk-adjusted returns. 

  • We think that by tapping on 3rd party capital, CAPL would be able to leverage on larger economies of scale, better capitalise on market opportunities and at the same time de-risk its property level exposure. 
  • We might potentially see CAPL seed some of these new funds with existing development projects on its balance sheet. 
  • Looking forward, we believe this platform will be able to drive medium-term shareholder returns towards its medium-term target ROE of 8-12%. 

Kicking start with a US$600m joint venture with Qatar Investment Authority. 

  • Ascott Limited announced a 50/50% US$600m joint venture fund with Qatar Investment Authority (QIA). The fund has a ten year mandate to invest in value-added opportunities in serviced residences globally but with an initial focus in Asia Pacific and Europe. 
  • Under terms of the partnership, the JV will 
    1. have exclusive rights over deals available to Ascott (after accounting for current ROFRs); 
    2. Ascott would have first right to manage properties acquired by the fund; and 
    3. Ascott Residence Trust (ART) would be granted right-of-first-refusal over these properties upon exit. 
  • Total AUM for this fund is estimated to be US$1.2-1.5bn, assuming 50-70% leverage. 

Maintain BUY, TP S$4.11. 

  • The stock trades at an attractive 0.8x P/Bk and we see the gap closing on the back of the group reporting strong results due to: 
    1. locked-in sales across its development projects in Singapore and China; and 
    2. potential gains when divesting stabilised assets into its listed REITs/funds. 

(Derek TAN; Rachael TAN; Mervin SONG, CFA)

Source: http://www.dbsvickers.com/