CapitaLand Investment started at Accumulate by PhillipCapital

CLI’s portfolio of assets include new economy assets in its core markets of Singapore, China and India, such as Grade A office developments Capital Tower and 79 Robinson Road (pictured). Credit: CapitaLandCLI’s portfolio of assets include new economy assets in its core markets of Singapore, China and India, such as Grade A office developments Capital Tower and 79 Robinson Road (pictured). Credit: CapitaLand

PhillipCapital started coverage of CapitaLand Investment at Accumulate, with a S$4.00 target price, pointing to stable and recurring revenue from fee income and real estate investments as well as growth in fund management and lodging assets under management.

“CLI’s property portfolio continues recovery on the back of a reopening and return-to-normalcy, while its investment management and lodging platform continues to receive growing demand from private capital and lodging owners,” the brokerage said in a note Monday.

Around 80 percent of fee income from fund management is recurring, while the lodging platform generates franchising and management fees, mainly from third-party-owned assets, the note said. CapitaLand Investment-owned income-generating assets are also expected to delivery “highly visible” cashflows, PhillipCapital said.

The brokerage also pointed to CapitaLand Investment’s divestment targets as a positive.

“CLI remains committed to its S$3 billion divestment target, which will help replenish dry powder to be reinvested into new economy assets such as logistics, data centres, business parks, as well as lodging assets like PBSA [purpose-built student housing] and multifamily assets which provide stable returns,” the note said. “This helps to better diversify and keep the portfolio future ready.”

The company has also been progressing on its target of funds under management (FAUM) of S$100 billion by 2024, but remains about S$17 billion short, the note said.

“Going forward, CLI hopes to capture private capital demand for real estate products via its private funds. CLI has brought on two new senior hires to spearhead the growth in private funds,” PhillipCapital noted, citing Simon Treacy as CEO of private equity real estate and Patrick Boocock as CEO of private equity alternative assets.

Lodging outlook

The lodging platform is also set to surpass its 2023 target of 160,000 keys under management after the company signed 8,300 keys in the January-to-August period, bringing its total to 130,900, the note said. Around 40 percent of the keys are still under development and haven’t begun contributing revenue, the note said.

PhillipCapital said it expected fee income to grow at a five-year compound annual growth rate of 16 percent on the hospitality recovery and as more units turn operational.

The Ascott, CapitaLand Investment’s lodging business, has been expanding into adjacent sectors, such as purpose-built student accommodation (PBSA) and multi-family/rental housing segments, PhillipCapital noted.

“The clientele for these assets have a longer average length-of-stay between 3-24 months. The investment proposition of long-stay asset classes was tested and validated during the pandemic – serviced residences outperformed their hotels peers while the multifamily and PBSAs maintained occupancies above 95 percent,” the note said.

Shares of CapitaLand Investment ended Tuesday up 1.78 percent at S$3.43.