CapitaLand - CGS-CIMB Research 2021-03-22: Restructuring For Faster Growth

CAPITALAND LIMITED (SGX:C31)

CapitaLand - Restructuring For Faster Growth

CapitaLand proposes to consolidate investment management and lodging platforms and to privatise real estate development business.
Creating a leading global real estate investment manager and unlocking value through implied consideration.
Reiterate ADD with a higher target price of S$4.04.

CapitaLand (SGX:C31) and CLA Real Estate Holding Pte Ltd (CLA), the existing controlling shareholder of the company, proposed a scheme of arrangement for
1. the restructuring of the Group’s business to consolidate its investment management platforms and lodging business into Capitaland Investment Management (CLIM) and
2. privatise the real estate development business.

Post restructuring, Capitaland Investment Management (CLIM) will be the largest real estate investment manager (REIM) in Asia and the third-largest REIM globally. Capitaland Investment Management will be listed on the Singapore Exchange and 51.8% owned by CLA while CapitaLand will be delisted. The transaction is subject to shareholders’ approval and is scheduled to complete in 4Q21.

CapitaLand shareholders will receive an implied consideration of S$4.102 in cash and scrip for every 1 CapitaLand share comprising 1 Capitaland Investment Management share valued at S$2.823 (1x NAV), cash consideration of S$0.951 (0.95x NAV for the development business) and a dividend–in-specie of 0.155 CapitaLand Integrated Commercial Trust (SGX:C38U) units (valued at S$0.328 per CapitaLand share based on CapitaLand Integrated Commercial Trust's share price of S$2.122).
The consideration price is at a significant 24-28% premium to the last close, 5-year and 10-year VWAP for CapitaLand's share price. In addition, the cash consideration will not be reduced by the proposed FY20 dividend of S$0.09 per share.

We like the transaction as it sharpens CapitaLand’s focus and positions it as an asset-light and capital efficient business through Capitaland Investment Management (CLIM) as well as unlocks value for investors through the scheme, in our view.
Capitaland Investment Management will be an Asian-centric fully-integrated Real Estate Investment Manager (REIM) with funds and property management capabilities across multiple asset classes. It has stakes in listed REITs and private funds valued at S$13.3bn and funds under management of S$77.6bn, that provide a stable, recurring income base while its full chain lodging management business with real estate AUM of S$27.7bn, offers another growth driver. In addition, its portfolio of S$10.1bn worth of investment properties provides a visible and quality pipeline for monetisation.
Proforma NAV of Capitaland Investment Management stands at S$14.7bn as at Dec 2020 with assets under management of S$115bn. Meanwhile, Capitaland Investment Management would continue to benefit as part of the privatised CapitaLand ecosystem with the latter’s integrated suite of real estate capabilities while the privatised development entity will be able to develop and incubate projects as a key source pipeline for Capitaland Investment Management.

We leave our earnings unchanged pending more information from the scheme document to be released in 3Q21. Our RNAV for CapitaLand is maintained at S$6.22. However, we have narrowed our assumed RNAV discount from 45% to 35% as we remove the 45% discount attributed to the value of the development business, given the cash offer. Accordingly, our target price for CapitaLand is raised to S$4.04.
See CapitaLand Share Price; CapitaLand Target Price; CapitaLand Analyst Reports; CapitaLand Dividend History; CapitaLand Announcements; CapitaLand Latest News.
Catalyst for CapitaLand's share price outperformance is a faster-than-projected pace of asset recycling.
Downside risks include slower-than-expected macro outlook.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-03-22

SGX Stock Analyst Report ADD MAINTAIN ADD 4.04 UP 3.420