Fee-related business support revenue
- 1H22 revenue of S$1,354mn (+29% YoY) was in line, forming 50% of our forecast.
- RE investment revenue grew 44% YoY, driven by a broad-based recovery. Fee-related revenue was up 9% YoY, lifted by PE fund management (+15%) and lodging management (+37%).
- Maintain ACCUMULATE with an unchanged SOTP TP of S$4.12. Our FY22e estimates remain unchanged. The pick-up in travel and lifting of lockdowns in China are immediate catalysts for CLI.
The Positives
+ Fund management fee-related revenue (+21% YoY) formed 16% of revenue. PE fees (+81%) were boosted by higher transaction-related fees, which formed 51% of PE fees, while recurring PE fees remained stable and grew 2% YoY. 1H22 PE fees include performance fees of S$31mn from notable transactions such as the unwinding of CLI-managed CapitaLand Vietnam Commercial Value-Added Fund (CVCVF) on Jan 22 and the reduction in an equity stake in Athena LP on Feb 22. CLI’s listed funds posted +7% and -15% growth in recurring and transaction-related fees respectively. The latter was the result of a high base in 1H21, as transactions picked up after the pandemic year.
+ Lodging segment recovering steadily. Lodging management fees rose 37% on recovering operating performance as well as 8.2k/4.5k new units turning operational in FY21/1H22. RevPAU grew 44% as average daily rates grew 21% and portfolio occupancy increased 9%. Recovery was seen across all CLI’s key markets, except China, with the strongest RevPAU recovery in Europe (+228%) and Singapore (+54%). The group also signed 4.5k keys in 1H22, ~54.9% of the number of keys signed in FY21, bringing the number of keys signed to 139k.
+ Real estate investment business (REIB) grew 44% YoY, on the back of reopening in most of CLI’s markets, except for China and Japan. Significant easing of community safe management measures since Mar 22 has improved business and consumer sentiment and increased activities. Leasing activity in India has similarly picked up with physical occupancy at business parks improving to ~35% from <5% in FY21. Due to China’s zero COVID-19 policy, Shanghai was placed under lockdown since Mar 22 due to the spike in COVID cases. This has stalled leasing activity and has resulted in rental rebates (~1.2 months) given to affected tenants in 2Q22. For context, 15 of CLI’s assets are in China, representing 34% of its China exposure.
The Negative
– Macro-economic and geopolitical headwinds slowing fund generation and acquisition momentum. Inflation, rising interest rates and the Russia-Ukraine conflict have resulted in more circumspect behaviour and higher required returns for capital investors, limiting the assets eligible to seed funds. While USD-denominated capital has taken a wait-and-see approach towards RMB investments, CLI’s RMB fund management license allows it to tap local capital. However, lockdowns and tightened restrictions in Shanghai and Beijing have impeded business discussions and may delay planned transactions if lockdowns persist.
Outlook
CLI’s real estate investment and lodging management business should continue to recover on the back of further easing of travel and mobility restrictions. Having divested S$1.6bn YTD, CLI is on track to hit its annual divestment target of S$3bn. However, its 10% FUM growth target may be at risk given the current macro-economic and geopolitical headwinds which have resulted in more circumspect behaviour among capital investors. Prolonged lockdowns in Shanghai and Beijing may also delay planned transactions.
