CapitaLand - CGS-CIMB Research 2018-09-18: Maiden Venture Into U.S. Multifamily Properties


CapitaLand - Maiden Venture Into US Multifamily Properties

  • Venturing into U.S. multifamily property segment via US$835m maiden acquisition.
  • Opportunity to scale up into new business platform with option to spin off into investment vehicles and partnerships.
  • Maintain ADD with unchanged Target Price of S$3.55.

Buys U.S. multifamily property portfolio

  • CapitaLand has ventured into the U.S. multifamily property segment via the acquisition of a portfolio of 16 freehold properties for US$835m (S$1.14bn) or at an initial NPI yield of 5- 5.5%. The portfolio comprises 3,787 apartment units located in Seattle, Portland, Greater Los Angeles and Denver.
  • The purchase will expand CapitaLand's total assets base from S$62.5bn to S$63.6bn as well as increase its international exposure by 2% pt to 14% of total assets base. The transaction is expected to be completed in 4Q18.

~ SGinvestors.io ~ Where SG investors share

Opportunity to venture into a deep, scalable market

  • This acquisition will broaden the group’s lodging property business into a deep and scalable asset class and enable it to build a new business platform in the US, with the option to spin off into investment vehicles and partnerships in the future.
  • The portfolio is over 90% occupied with an average length of stay of 2 years, thus providing the group with an immediate and steady income contribution. In addition, CapitaLand plans to improve investment returns through rental uplifts after a refurbishment exercise that will take place in phases over the next few years.
  • ~ SGinvestors.io ~ Where SG investors share

Transaction to be funded via debt

  • ~ SGinvestors.io ~ Where SG investors share
  • The deal is expected to be mildly earnings accretive, given CapitaLand’s plan to fully fund the purchase via debt. We estimate this purchase will likely increase CapitaLand's net debt to equity ratio to 0.53x and still provide the group with a sizeable headroom to further grow asset under management.

Maintain ADD

  • We leave our earnings unchanged for now pending completion of the transaction and maintain our RNAV of S$5.46. Our Target Price of S$3.55 is pegged to a 35% discount to RNAV.
  • Potential re-rating catalysts include a faster-than-expected pace of asset reinvestment side risks include slower-than-anticipated capital deployment.

LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2018-09-18
SGX Stock Analyst Report ADD Maintain ADD 3.550 Same 3.550