CapitaLand has remained RHB’s sector top pick, says analyst Vijay Natarajan, as the group’s portfolio operations across various asset classes rebounded from a 2Q trough.
On this, Natarajan has maintained his “buy” call on the counter with the same target price of $3.16.
During 3Q, retail operations across markets bounced back, with improvements seen in tenant sales and shopper traffic.
Overall occupancy for CapitaLand’s lodging assets also improved to around 50% in the same quarter with a 22% q-o-q increase in revenue per available room (RevPAR).
Fund management fee income for 3Q rose 2% q-o-q to $71.1 million, though it was down 18% y-o-y.
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As such, Natarajan says he expects a strong 2H vs 1H and estimate a 48% y-o-y rise in 2021 earnings.
CapitaLand’s annual target of $3 billion in divestments has also been achieved despite the negative impact of the Covid-19 pandemic in 2020, as it recycles its capital into new economy assets.
On Dec 1, CapitaLand announced the divestment of three Japanese malls – La Park Mizue, Vivit Minami-Funabashi and Coop Kobe Nishinomiya Higashi – for JPY21.99 billion ($283.6m) at a slight premium to book value, netting the group an estimated net gain of some $6.4 million.
The group also formed a joint venture with Mitsui & Co to develop and operate a logistics project in Greater Tokyo, which marks its maiden foray into Japan’s logistics sector. The project is expected to be completed by 4Q2022.
On Nov 16, CapitaLand announced plans to ramp up investments in China to $5 billion from $1.5 billion with a focus on business parks, data centres, and logistic assets.
“These moves reiterate its strategy of divesting non-core assets (mainly retail) and to recycle the capital into new economy assets,” says Natarajan.
Following its moves, year-to-date ended November, CapitaLand has registered a gross divestment value of $3.02 billion and invested more than $3.3 billion into new assets, he adds.
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The group is also seeing strong residential sales across its various markets.
Residential sales in China rose 40% q-o-q to 1,900 units in 3Q while the group sold three times and two times the number of units in 3Q compared to the 1H in its Singapore and Vietnam markets respectively.
More recently, on Dec 7, CapitaLand announced the formation of a programmatic joint venture to acquire and develop a freehold land parcel in Austin, Texas.
The parcel will be developed into a multi-family project totalling US$300 ($416.1 million).
“Multi-family as an asset class had been holding up well, with its existing portfolio of 16 assets acquired in 2018 registering a committed occupancy of 95%,” says Natarajan.
“We believe such assets in the mid to long term have the potential to be spun off as a standalone REIT or divested into Ascott REIT. With this new investment, CapitaLand’s asset under management in the US stands at $4.7 billion, or about 5% of its total,” he adds.
He has, however, lowered his FY2020 earnings estimates by 10% due to prolonged weakness in the hospitality portfolio and higher-than-expected rent rebates.
As at 1.07pm, shares in CapitaLand are trading 2 cents higher or 0.6% up at $3.18.
