This Monday, CapitaLand announced plans for a partial stake sale of its Raffles City portfolio to Ping An Life Insurance. The news come as the latest step in the company’s restructuring plans, leaving its property investment business as a listed company.

Read on for excerpts from the note published by Macquarie Research (MQ) on 28 June 2021 to learn more about how the Raffles City divestment will benefit CapitaLand’s transition to an investment management entity…



Multiple positives from partial stake sale in six Raffles City assets

MQ views CAPL’s partial stake sale in six Raffles City assets in China positively. The deal will provide further uplift to the previously announced Net asset value (NAV) for CapitaLand Investment Management (CLIM), taps on a new source of capital for its fund management business and releases capital to fund reinvestments into new economy sectors. All these will be achieved while retaining fee income from these assets for its fund management business.



Impact

Partial stake sale in six RC assets. CAPL will divest partial stakes in six Raffles City assets in China to Ping An Life Insurance. The agreed property value of RMB46.7 billion is a 6.7% premium over its end-2020 valuation, which has an implied Net Property Income (NPI) yield of 4.3% and excludes Ascott RCH.

The S$9.6billion gross value for this transaction lifts year-to-date (YTD) divestments to S$11.2billion, which is well ahead of its S$3 billion annual capital recycling target. This deal will strengthen its balance sheet and yield more than S$2 billion of net proceeds to fund CAPL’s investments into new economy sectors.

CAPL intends to grow China exposure in new economy asset classes from S$1.5 billion at end-2020 to S$5 billion over the next few years. It expects to complete the deal in 3Q2021.


New source of capital for fund management business. This deal brings Ping An onboard by building on its recent registration as a private equity fund manager to raise onshore capital in China. Onshore capital from China would make up 25% of its private equity investor base after this deal.

This leverages on its strong China presence over the years to tap a new source of capital to fund the growth of its fund management business.


NAV uplift for CLIM. Pro-forma disclosures revealed a Net Tangible Assets (NTA) uplift of 6 cents for CAPL. This gain will be retained in CLIM, which has been renamed CapitaLand Investment (CLI). Along with the estimated gains of 1.4 cents for the previous divestment of Galaxis, MQ estimates a 7cents uplift to the previously announced S$2.82 pro-forma NAV for CLIM.



Action and recommendation

Outperform. MQ likes CAPL’s ongoing restructuring and believe the current share price offers an attractive implied valuation for the surviving entity.

12-month price target: S$4.35 based on a Revalued Net Asset Value methodology