Analysts see myriad opportunities in CapitaLand's US portfolio acquisition

Analysts see myriad opportunities in CapitaLand's US portfolio acquisition

Michelle Zhu
19/09/18, 01:28 pm

SINGAPORE (Sept 19): CGS-CIMB Securities and DBS Vickers Securities are maintaining their “add” and “buy” calls on CapitaLand with the respective target prices of $3.55 and $3.62.

This follows news of the group’s foray into the US multifamily property segment with its recent billion-dollar acquisition, which both research houses are positive on.

In a Wednesday report, CGS-CIMB analyst Lock Mun Yee says she views CapitaLand’s acquisition as an opportunity to “venture into deep, scalable market” through the expansion of its lodging property business – while also enabling it to build a new business platform in the US, with the option to spin off into investment vehicles and partnerships in the future.

In her view, the group’s purchase is likely to increase net-to-equity ratio by 0.53 times while still leaving sizeable headroom to further grow assets under management (AUM).

“Potential re-rating catalysts include a faster-than-expected pace of asset reinvestment while downside risks include slower-than-anticipated capital deployment,” says Lock.

Meanwhile, DBS analyst Derek Tan highlights the acquisition as a complementary addition to CapitaLand’s Ascott serviced residence business.

“The multi-family asset class is widely seen to offer resilient cashflows and we see this asset class as an expansion of the group’s established corporate housing business under Ascott, which targets the longer-stay corporate segments,” notes Tan in a separate report on Wednesday.

Going forward, Tan says positive market dynamics, driven by stronger business activities and employment growth opportunities in the related submarkets, will underpin demand for offices and multifamily homes in the US.

As such, he expects CapitaLand’s new US portfolio to continue enjoying strong demand from middle-income families and skilled professionals.  

In particular, the analyst views the group’s plans to add value to the portfolio through strategic AEIs signals a possibility that these properties could be spun off into a REIT in the longer-term.

“Given CapitaLand’s expertise in fund management and the management of REITs, we believe that the opportunity will come in the form of a REIT platform which will allow CapitaLand to grow its fee management business and to present investors with a tax-efficient platform to invest in the US multi-family business,” he explains.

As at 1:26pm, shares in CapitaLand are trading 8 cents higher at $3.35 or 11.4 times 2018F book.

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