The Smart Investor

Royston Yang Tue, 29 June 2021

CapitaLand Limited (SGX: C31) made its first major move amid its bid to transform into an asset-light investment firm under “CapitaLand Investment Management Limited”, or CLIM.  

Previously, the property giant highlighted numerous opportunities for capital recycling to refine its portfolio and ensure higher returns for shareholders.

The company is making good on its promise now. 

Yesterday, CapitaLand announced that it had inked an RMB 46.7 billion agreement to divest partial stakes in six of its China development properties to Ping An Life Insurance, a unit of Ping An Insurance (SHA: 601318).

This transaction will introduce the major Chinese insurer as a strategic partner to CapitaLand and help the group to accelerate its growth ambitions in the Middle Kingdom.

Here are five things investors need to know about this divestment.

Attractive monetisation opportunity

Currently, CapitaLand holds between 30.7% to 55% of the six properties.

The intention is to divest them such that the group will retain a stake of between 12.6% to 30% of each property.

As some of the properties will fall below the threshold of 51%, CapitaLand will not need to consolidate them in its books, thus lightening its balance sheet.

The divestment will enable CapitaLand to realise a 6.7% premium to valuation, with all six properties being valued at a total of RMB 46.7 billion.

CapitaLand will remain the asset manager for all six properties and continue to earn fee income from this role.

The divestment is targeted to complete by the third quarter of 2021 and will bring in more than S$2 billion to the group.

Introduction of a new strategic investor

The partial stake sale to Ping An introduces a new strategic partner that will help to broaden CapitaLand’s investor base.

Ping An is one of the largest financial services companies in China with over 200 million retail customers.

Post-transaction, CapitaLand’s funds under management (FUM) stands at S$25.8 billion, with corporations and insurance being the two largest investor types at 43% and 28%, respectively.

Enhancing access to Chinese funding

The divestment coincides with CapitaLand’s announcement that it has successfully registered itself as a private equity fund manager in China.

With this licence, the group can raise funds in RMB and also provide fund management services.

These licenses will greatly enhance its ability to increase its China asset base as it can now market directly to Chinese investors.

Mr Phua Tze Shyang, CEO of CapitaLand China, remarked that CapitaLand intends to more than triple its China exposure from S$1.5 billion as at end-2020 to S$5 billion over the next few years.

Prior to today, the group kick-started its China initiative by investing RMB 3.66 billion to develop its first hyperscale data centre campus in Shanghai.

Pivot towards new economy asset classes

The aim of the divestment is also to reduce CapitaLand’s focus on “older” economy assets and pivot towards newer asset classes.

Some of these include business parks, logistics and data centres where tenants enjoy strong fundamentals and a supportive regulatory environment.

The strategy also includes two other aspects.

The first is the divestment of non-core assets to unlock profits that are recycled into higher-yielding assets.

Some examples are the recent divestment of a mall by CapitaLand China Trust (SGX: AU8U), or CLCT, in January and the sale of a serviced residence by Ascott Residence Trust (SGX: HMN) in February.

The second is to improve capital efficiency while retaining its FUM, such as entering a JV with CLCT to invest in Ascendas Xinsu portfolio.

Boosting chances of a recovery

CapitaLand plans to grow aggressively in China.

Its retail platform, anchored by digital platform CapitaStar, has been rapidly growing and now has more than 13 million members in China.

There are multiple opportunities for the group to tap on its fund management licence and wide investor base to scale up its China FUM.

The total capital recycled year to date has already hit S$11.2 billion, more than triple the annual target of S$3 billion.

CapitaLand’s rapid pace of monetisation highlights its discipline in reorganising the group in preparation for the CLIM spin-off once it is approved at an extraordinary general meeting.

With gains enjoyed by the portfolio from these actions, CapitaLand is moving one step closer towards a sustained recovery for 2021.