Singapore based CapitaLand Investment REIT 1Q saw a flat top-line with growth in fee-income business offset by decline in performance of on-balance sheet real estate investments. Weak capital markets weighed on fund deployment with FUM unchanged from last quarter at SGD100b. However, private fund raising continues apace, CLI is tapping into domestic China liquidity and divestments have accelerated. Fee margins are stable while borrowing cost inched up.
Reflecting slower AUM growth, Maybank IB Malaysia lowers its estimates and trims its TP to SGD3.00. but maintains a Buy call on the share.
Fee income business continues to grow
1Q revenue was unchanged YoY at SGD650m. The 7% growth in fee related business was offset by 4% decline in real-estate business. Property and lodging management fees grew 18% and 8%YoY respectively supporting growth in fee related business. On the other hand, fees from the fund management business were unchanged on stable AUM and fee margins.
Decline in real estate business was mostly due to lower demand for lodging platform, weakness in China and FX losses. Improved pace of divestments led to net debt to equity trending down to 0.53x (Dec: 0.56x) while borrowing cost was up 10bps to 4.0%.
FUM unchanged, target remains to 2x in five years
While headline business drivers of fund management (FUM c.SGD100b, fee margins 45bps) were relatively unchanged, divestments and activity by private funds picked up pace. YTD effective divestment was SGD0.5b, similar to that done in 1H last year. Private funds raised SGD0.7b of committed equity and made SGD1b of investments, despite difficult fund
raising environment. Near-term focus remains divesting B/S assets in the US and China and seeking M&A opportunities. RevPAU for lodging business grew 6% YoY to SGD82, led by 2pp higher occupancy and 4% increase in daily rates, though growth rates are normalizing.
Maintain BUY
The house lowers its FUM target for FY24 by c.10% to SGD105b and cut our lodging business growth rate, resulting in a 15% fall in EBITDA. This translates into a 5% fall in the SOTP-derived target price to SGD3.0. While headwinds persist, valuations are reasonable and management’s focussed execution should deliver results in medium term
