Waiting to pounce 1H2022 highlights
- CapitaLand Investment Limited (“CLI”) reported a c.38% y-o-y drop in PATMI to S$433m. This is largely due to lower portfolio gains given significant recycling activities a year ago.
- From an operations perspective, operating PATMI and EBITDA rose by 31% y-o-y to S$346m and declined by 32% to S$873m,respectively, slightly ahead of our estimates.
- Bright spots: (i) Resilient fee-related business revenues were +16% y-o-y, mainly due to a one-off gain from the exit of the Vietnam Fund and (ii) the lodging business shows a strong recovery (RevPAR +44% in 1H22).
- Key datapoints to watch: (i) FUM growth, which is flat y-o-y but could see an uplift in 2H22; (ii) divestment activities on the balance sheet (estimated at S$3bn a year); and (iii) a turnaround in China operations, although it is expected in 2023
Our thoughts
(+) EBITDA beat; but PATMI dropped due to lower recycling activities.
- As mentioned above, CLI reported a c.38% y-o-y drop in PATMI to S$433m, largely due to lower portfolio gains given significant recycling activities a year ago.
- EBITDA declined by c.32% to S$873m, in line with estimates. The y-o-y drop was due to (i) lower gains recorded due to lower recycling activities in 1H22 (c.S$1.6bn in recycling; c.S$11.3bn recycling in 1H21) and (ii) rental rebates given to China (especially in Shanghai due to lockdowns in 2Q22). This was offset by an increase in recurring and event-driven revenue and growth in lodging fees.
- Operating PATMI rose c.+31% y-o-y as the group’s fee income-related business (“FRB”) saw incremental fees from its key business units from its funds in Vietnam, Singapore, and managed lodging properties.
(-) China – a lost quarter but outlook continues to brighten.
- We understand that the China operations saw a disruption in 1H22 due to selective lockdowns in Shenzhen, Wuhan, Beijing, and Xian, but opertions appeared to have resumed, as the COVID-19 situation improves.
- Overall, the new economy assets reported positive rental reversions and resilient occupancy rates of between 90%-94% over the past year, highighting its resilience in the midst of the economic slowdown.
- The lockdowns and political uncertainty in China have resulted in a slowdown in the group’s recycling and investment timeline, but this prognosis is improving, given the relaxation of restrictions in China. The group is keeping the gunpower dry and will look to relaunch its asset recycling and capital deployment once the outlook improves.
(-/+) Asset recycling strategies
- CLI, together with its REITs and private funds, has in total invested c.S$2.2bn and divested close to c.S$1.6bn of properties across various platforms. The group remains committed to its S$3.0bn divestment target in 2022, with China remaining a key geography that will restart a more meaningful recycling quantum.
- In terms of opportunities to acquire, the group is willing to work its balance sheet and co-invest with its REITs or private funds for the right opportunity and “warehouse” properties for future recycling. The group is also open to working with its development arm – CapitaLand Developnent (“CLD”) to look at co-investing opportunites.
(+) Lodging – more room to run
- The lodging business returned strongly in 1H22 with overall lodging management fees increasing by c.37% to S$118m, with total lodging units in the portfolio seeing a strong uplift to 153k units (+Oakwood), which is close to achieving its 2023 target of 160k units.
- RevPAR in 1H22 rose to +44% to S$82/night, with most countries reporting an improvement, with the exception of China (-11%), compared to a year ago. The manager remains optimistic about its performance in 2H22 and the next big improvement in operational performance will come when Japan and China reopen their borders to international travel.