Biding its time
Maintaining fiscal discipline and exercising patience in capital deployment. Lodging management business to benefit from strong travel recovery. Reiterate Add rating with an unchanged TP of S$4.59.
Adopting fiscal discipline and patient capital deployment approach
During its Investor Day event, CLI reiterated its target to deliver funds under management (FUM) of S$100bn by 2024. It stressed adopting fiscal discipline and patient capital deployment amid the more volatile macro conditions. Balance sheet remains strong with a net debt to equity ratio of 0.51x and S$7.4bn of cash and undrawn facilities. CLI indicated it has potential debt headroom of S$3.7bn (based on net debt/equity assumption of 0.7x) and potential deployable capital of S$9.7bn to reach its FUM target. It intends to leave funding capacity for M&A opportunities, seeding new funds, warehousing assets for its REITs and to maintain sufficient cashflow for dividends and share buybacks.
Focus on portfolio optimisation and tapping diversified capital pool
In the meantime, it will continue to focus on optimising returns via portfolio repositioning, such as asset enhancements and redevelopment activities, as well as tapping private equity opportunities through its diversified capital pool. Under its listed REITs platform, it will look to proactively manage its assets with a view to incorporate sustainability in all aspects of the trust, maintain a disciplined acquisition strategy and be prudent in capital management. With its private equity fund management business, management indicated that there is still interest in real estate and alternative investments, although FUM growth may be slower as investors remain cautious during this period of uncertainty. Nonetheless, CLI is well-positioned to tap diversified funding in Asia and globally, with its Rmb onshore fund management licence and local strategy in Japan and Korea.
Lodging segment to benefit from travel recovery tailwinds
According to the International Air Travel Association (IATA), international air traffic surged 116% yoy in Aug 22, led by APAC. Meanwhile, based on STR Sep data, nearly one-third of global markets saw higher occupancy and average daily rates vs. 2019. The strong recovery in global travel is likely to provide more tailwinds to the hospitality sector recovery and CLI’s lodging management business. The group maintained its target of achieving 160k keys under management by 2023 and to expand its lodging product offerings.
Reiterate Add rating
With a large and diversified portfolio, CLI remains a play on mega trends, such as recalibration of retail between digital and physical, evolution of the workplace, return of international travel, structural demographic shifts and urban migration and data fragmentation and supply chain issues. We maintain our TP of S$4.59, based on a 10% discount to RNAV of S$5.10. Key downside risks include asset repricing, slower-than-expected scaling up of its FUM or a dampened real estate outlook that could hamper the pace of its capital recycling activities.