CapitaLand - CGS-CIMB Research 2021-06-28: Divesting Partial Stakes In RC Developments


CapitaLand - Divesting Partial Stakes In RC Developments

  • CapitaLand (SGX:C31) is divesting partial stakes in six Raffles City developments in China.
  • Total recycled capital year-to-date at S$11.2bn. Sale will realise more than S$2bn in net proceeds.
  • Reiterate ADD rating on CapitaLand with an unchanged target price of S$4.04.

CapitaLand is divesting partial stakes in six Raffles City developments

  • CapitaLand announced that it has entered into conditional agreements to divest partial stakes in six Raffles City (RC) developments in China to Ping An Insurance Company of China Ltd (Ping An). The agreed property value of RMB46.7bn (100% basis) is at a 6.7% premium to valuation.
  • Post divestment, CapitaLand will retain effective 12.6-30% stakes in each development and will remain asset manager for all the six RC developments. Management expects the transaction to be completed in 3Q21F.

Attracting new strategic investor while building fee income

  • The six properties – RC Shanghai, RC Beijing, RC Changning, RC Chengdu, RC Hangzhou and RC Ningbo - have a total gross floor area of 1.5m sqm. Based on a net property income of RMB1.9bn generated in FY20, we estimate that the deal was transacted at an historical net yield of 4.3%.
  • We view the divestment to a new strategic partner in Ping An as positive; it demonstrates CapitaLand’s ability to unlock value through the participation of a reputable investor. In addition, CapitaLand would also continue to generate recurring fee income by its management of these assets.
  • Following CapitaLand’s successful registration as a private equity fund manager in China in Jun 21, CapitaLand will now be able to conduct RMB-denominated fund raising and provide fund management services in China, thus potentially expanding its product offerings and fund management capabilities, and further opening up more opportunities for capital partnerships with domestic Chinese institutional investors in the future, in our view.

Realising net proceeds of more than S$2bn

  • In terms of impact, CapitaLand expects to realise net proceeds of more than S$2bn from the sale. Its FY20 book NTA is expected to increase by 1.4% to S$4.15, according to management. The transaction brings total capital recycled across the group to S$11.2bn year-to-date, 3x higher than its annual target of S$3bn.
  • In addition, the potential divestment gains should also bolster CapitaLand's FY21F bottomline, in our view.

Reiterate ADD rating

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-06-28
SGX Stock Analyst Report ADD MAINTAIN ADD 4.040 SAME 4.040