Following the strategic restructuring of CapitaLand, OCBC Investment Research views that CapitaLand Investment (CLI) has emerged as a “more nimble and resilient entity”.
In an Oct 6 research note, the OCBC research team stated a "buy" call for CLI, with a fair value of $3.83 based on a sum-of-the-parts approach.
“Post-restructuring, CLI has become one of the world’s largest listed real estate investment managers (REIMs), with $119 billion of real estate assets under management (AUM), as at Jun 30,” the team says.
See: CLI opens on steady note, management looks to future in new economy, PERE and alternative assets
The way OCBC sees it, CLI has emerged with a more asset-light business model with a strong focus on recurring income streams. CLI’s real estate funds under management (FUM) totalled $83 billion as of June 30, held via six listed REITs and business trusts, and over 20 private funds. Management has a target of reaching $100 billion of FUM by 2024.
Looking ahead, the team highlights CLI’s focus on new economy assets and capital recycling. CLI is targeting divestments of $3 billion per annum, with proceeds to be reinvested into assets such as logistics, data centre and business park properties.
While its lodging management business has been adversely affected by the Covid-19 pandemic, the team points out that CLI has mitigated the impact by focusing on asset-light management and franchise contracts. 80% of its lodging units under management as of Dec 31, 2020 are under management contracts and franchise deals.
“Compared to its local peers, we believe CLI will be relatively less susceptible to the impact from potential government cooling measures within the residential market, given that its property development arm has been privatised under its parent following the restructuring,” the team comments.
OCBC is also positive on CLI’s two recent senior hires - former BlackRock Real Estate global CIO Simon Treacy and Patrick Boocock, former managing partner and head of Asia at Brookfield Asset Management - as the team believes this will help propel CLI’s funds management business further.
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The team views potential catalysts for CLI include the divestment of assets at tighter-than-expected yields, faster-than-expected increase in fee income and a boost in dividends per share.
Meanwhile, risks include a slowdown in macroeconomic conditions, a spike in interest rates, and delays in recovery from Covid-19.
Shares in CLI closed down 1 cent or 0.29% lower at $3.39 on Oct 8.