- Robust 3Q22 balance sheet with net debt to equity of 0.49x.
- Faster pace of private fund-raising to boost fee income.
- Maintain Add with a lower TP of S$4.50.
Highlights from 3Q22 business update
In its 3Q22 business update, CLI continued to show operational resilience, underpinned by its fund management fee income, lodging management as well as the real estate investment business. Balance sheet remains robust with net debt to equity ratio of 0.49x as at end-3Q22, interest cover of 4.2x and strong cash and undrawn facilities of S$7.2bn.
Higher fee income, private fund-raising gains momentum
Fee-related (FRB) revenue grew 6.3% yoy in 3Q to S$101m and +16% yoy to S$339m for 9M22, supported by recurring income from listed funds and event driven fees from its private funds. Fee to fund rate increased qoq and yoy to 53bp. Looking ahead, although FUM was unchanged qoq at S$86bn, CLI indicated that it has S$6.1bn of embedded FUM, which can be progressively deployed from 4Q22 to expand its FUM base. Some of these new funds include its JV with APG, Netherland’s largest pension provider, to commit an initial equity investment of S$570m, with an option to increase the investment up to S$1.14bn, to acquire ExtraSpace Asia, one of the largest storage businesses in Asia and to further build an Asia-focused self-storage platform. Private fund-raising also gained momentum with CLI establishing two more onshore Rmb funds totalling Rmb4bn to invest in business parks opportunities in China. YTD, CLI has divested a total of S$2.37bn, on track to meet its S$3bn target and gross investments of S$4.24bn.
Growing units under management on track
Lodging management segment posted a 48.4% increase in revenue to S$190m for 9M22, thanks to a rebound in global travel and a 41% jump in portfolio RevPAU, largely in Europe, Singapore, South East Asia and Australia and North Asia (ex-China). CLI continued to grow its units under management to 155k units and appears on track to meet its 2023F target of 160k units. We believe this will underpin growth in lodging management income.
Focus on building asset pipeline, improving operational resilience
Revenue from the real estate investment business (REIB) rose 48% yoy to S$1,571m for 9M22. Management indicated that China’s ongoing deleveraging presents a potential window to access investment opportunities, driven by special situations and market dislocation, and it remains on the lookout for attractive new economy projects. To this end, CLI had successfully bidded for Borui Plaza, a Grade A office in Beijing for Rmb2.04bn (or 30% below its Sep 2021 valuation) in Oct 2022, via a court auction.
Reiterate Add rating
We tweak up our FY22-24F EPS marginally but lower our RNAV by 2% to S$5.00, due to lower TPs for its listed REITs. Our TP is lowered to S$4.50, based on an unchanged 10% discount to RNAV. Upside catalyst: faster growth in FUM that would boost its fee income. Downside risks include dampened real estate outlook that could weaken its fund performance and hamper the pace of its capital recycling activities.