CapitaLand investment: a good start (OTCMKTS: CLILF)

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CapitaLand Investment Logo

CapitaLand investment logo (CapitaLand website)

Investment thesis

In April last year, I wrote an article titled “Go Big Or Go Home” about the planned spin-off of real estate giant CapitaLand in Singapore.

The split took the real estate development part of the private company and merged their property management and investment into CapitaLand Investment Ltd (OTCPK: CLILF). It began to be marketed under this name on September 20, 2021.

It has a market capitalization of SGD 19.7 billion and assets under management of SGD 124 billion, which equates to USD 89.4 billion.

Part of that is 5 REITs they created and sponsored with stakes between 18% and 39%. These are CapitaLand Integrated Commercial Trust, Ascendas REIT, Ascot Residence Trust, CapitaLand China Trust, Ascendas India Trust and CapitaLand Malaysia Trust. These REITs own 375 properties spread across the world but mainly concentrated in Singapore and China. The sponsor’s stake has a market value of SGD 7.7 billion.

Its objective is to reach approximately SGD 100 billion by 2024 in funds under management.

CLILF can be purchased in the US, but I don’t know which brokers are executing trades under this name. My suggestion would be to consider buying the shares on the Singapore Stock Exchange through your broker.

The stock is off to a very good start.

CLILF up 30% since the start of listing

CLILF up 30% since start of trading (SA)

Let’s take a look under the hood to see if it’s a good investment.

finance

The CLILF only publishes financial results twice a year, an interim report after FH and a final report for FY. They do, however, give some indication of the development as they have declared the income.

CapitaLand Investment - Q1 2022 revenue

CapitaLand Investment – Q1 2022 Revenue (CapitaLand Investment Q1 Update)

I always like to see a company’s profitability, balance sheet, ability and willingness to return some of the money it makes to all of its shareholders.

As of March 31, 2022, the company held SGD 8.1 billion in group cash and undrawn facilities, which is sufficient to support the operation and still has dry gunpowder available should new investment opportunities arise. present.

Their debt ratio is healthy, with a net debt to equity of 0.48x and a net debt to total assets of only 0.29x

The implied interest cost is 2.6% with an interest coverage ratio of 6.2x. Here is their loan schedule.

CapitaLand Investment - Loan Maturity Profile

CapitaLand Investment – Loan Maturity Profile (CapitaLand Investment – 2nd Q of 2022 Update)

In terms of profitability, the ROE was 8.7% in 2021 which is acceptable.

The NAV per share was 3.123 SGD, which gives us a price/NAV of 1.23

EPS for the 2021 financial year was 26.23 Singapore cents

The “old” CapitaLand did not have a very good track record in terms of a stable dividend.

CapitaLand - 15 Year Dividend and Yield History

CapitaLand – 15 Year Dividend and Yield History (Data from SA and CapitaLand. Chart by author)

Nevertheless, it says in the gospel that “the old life is gone, and a new life has begun!” However, judging from their first year when they declared and paid a dividend of 15 Singapore cents, that gives investors a dividend yield of 3.92%, which isn’t fantastic.

Time will tell if they will distribute more in the years to come.

Business development

Although they do not release financial results every quarter, they do provide investors and shareholders with business updates every quarter.

In their Q1 2022 business update, they reported good news as the reopening of economies following the COVID-19 pandemic began to benefit the business. An example of this is the increase in activities in Singapore and China, which are important markets for the company.

However, it also faced new challenges, with inflation wreaking havoc on consumer confidence and rising interest rates. We have also seen an increase in COVID-19 cases in China, so it will be interesting to see the government’s response. I think it could be a little less drastic.

Conclusion

I like their capital recycling business philosophy as it is one of the most profitable aspects of real estate investing.

After all, the leasing business is competitive because capitalization rates, called capitalization rates, are usually very low. As I pointed out in my book on value investing, the reference to that book is below, you don’t get rich by renting out a property. Most of the money is in the appreciation of an asset. Therefore, if one is shrewd in recycling capital, it makes all the difference.

Investors are clearly happy with the “new” CapitaLand Investment. Not only has it risen 30% since it started trading, it has been able to beat the Straits Times Index and the S&P 500 so far this year.

CLILF versus STI and the S&P 500

CLILF versus STI and the S&P 500 (Yahoo Finance)

The sixty-four thousand dollar question is, is all the “good news” accounted for already?

Much will depend on whether we are in a long period of stagflation, as I would like to call it, or whether it is short-lived.

I believe CLILF is conservatively funded and well positioned. Nevertheless, I think the share price is fair and leaves little safety margin.

As such, I am placing a Hold position on CLILF at this time.

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