SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

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Equity Bottom-Up

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<ul>
<li>
CapitaLand opened 21% higher this morning at S$3.99, following the announcement of a strategic restructure of the two distinct property sides of the business - listing the more capital efficient investment management business and privatising the more capital intensive development business. 
	 </li>
	<li>
Poised to create shareholder value, APAC-listed Real Estate Managers trade on average at valuation multiples that are higher than Real Estate Developers. The scheme of arrangement will privatise CapitaLand in exchange for Scrip in CapitaLand Investment Management (“CLIM”) and CICT, and a cash consideration.  
	 </li>
	<li>Just four weeks ago, CapitaLand highlighted its fund management business was a key pillar. The CFO noted the funds AUM grew 5.3% YoY in FY20 and the Group remained on track to deliver S$100 billion of AUM, and optimistic of further AUM growth from a balance sheet and operational perspective.</li>
</ul>
 

CapitaLand opened up 21% at this S$3.99 this morning following the announcement of a strategic restructure of the two distinct property sides of the business - the funds management side and the development side of the business. The transaction, subject to approvals, will be carried out via a scheme of arrangement that provides CapitaLand shareholders an implied consideration of S$4.102 including:

<ul>
<li>69% of S$4.102 will be in CapitaLand Investment Management Scrip</li>
	<li>23% of the S$4.102 will be in a cash distribution.</li>
	<li>8% of the S$4.102 will be in CapitaLand Integrated Commercial Trust units</li>
</ul>
 

Eligible Shareholders are expected to receive S$4.102 per share in cash and scrip for every one CapitaLand share they own. Prior to the announcement the stock was trading at S$3.31.  For full details of the transaction, click <a href="https://links.sgx.com/1.0.0/corporate-announcements/8JMRHC9AGODE0ZVK/918b718ed0f5237ce582220f0bbb2ac8e1148b8fd0307dc209a035f42f831a2a">here</a>. The strategic restructure of the listed CapitaLand entity is consistent with CapitaLand 3.0 objectives. As reiterated by the Group in recent years CapitaLand 3.0 is about “Creating long-term shareholder value by targeting sustainable return on equity above the cost of equity”. Back in early 2019, the Group noted with the Ascendas-Singbridge transaction that one of its four key objectives at the time was accelerated growth of income, by growing the asset management business further to transform into a global real estate asset manager. 
More recently with the FY20 results, CEO Lee Chee Koon did note that COVID-19 disrupted but wouldn’t change the plans for CapitaLand to become a globally competitive asset manager and real estate company, and added the Group would continue to capitalise on new opportunities to further transform its business. CapitaLand’s CFO Andrew Lim also noted at the virtual FY20 results briefing (click <a href="https://www.youtube.com/watch?v=RF0nlF57Dis&amp;force_isolation=true">here</a>) that the fund management business of CapitaLand is a key pillar, and amid the challenges, fund AUM grew 5.3% year-on-year in FY20. 
Mr Lim added the group remained on track to deliver S$100 billion Funds AUM, and the target was now well in reach, and the Group was optimistic from a balance sheet and operational perspective it could grow the AUM further. Mr Lim also inferred that the strategic reorganization of the REIT businesses over the past two years has provided the foundation for the Group to be a global real estate asset manager. 
Securitisation of Real Estate assets across the globe has also intensified over recent years, to the point that large index providers and the global organisations that classify stocks have established Real Estate as its own Sector, with distinct its own sub-industries, as opposed to being a subset of Financial Services. The strategic restructure potentially posies the new entity, CapitaLand Investment Management to be the largest listed Real Estate Investment Manager by AUM in Asia Pacific, and among the top three global Real Estate Investment Manager by AUM across the world, based on data available through 2020. CapitaLand Investment Management (“CLIM”) 
The new entity CapitaLand Investment Management will be a fully integrated Real Estate Investment Manager with funds and property management capabilities (managers of all the REITs and business trusts), in addition to private and listed funds - CapitaLand Development will be the private entity providing for flexibility to pursue capital large scale, multi-phased intensive projects and longer gestation projects, and incubate new businesses such as data centres. The strategic restructure of CapitaLand is looking to capture more value for shareholders by listing the, capital efficient, investment management business and privatising, the capital intensive, development business, the Group is looking to create shareholder value. Developers and investment managers are distinctly different businesses with different industry objectives. Real Estate Developers generally look to build or redevelop, in some instances large scale projects than can span property market cycles, whilst Real Estate Investment Managers take charge of the developed property, managing it in the most efficient way to generate income. APAC Real Estate Managers do currently maintain higher valuations than Developers:

<ul>
<li>Real Estate Managers across APAC are currently trading at a median 10% discount to book value, which is up from a 15% discount to book value at the end of 2019, while on a less relevant P/E basis they are trading at 16x multiple up from a 15x multiple at the end of 2019.</li>
	<li>Real Estate Developers across APAC are currently trading at a 25% discount to book value, which is the same discount they were trading at the end of 2019. On a P/E basis, they are trading an 11x multiple, up from a 10x multiple at the end of 2019.</li>
	<li>Note these are indicative comparisons that incorporate not just regional peers, but managers and Developers of all sizes.</li>
	<li>On a NAV basis, Mr Lee noted yesterday that listed Real Estate Investment Managers generally trade at a premium to their NAVs in the capital markets.</li>
</ul>
 Based on 31 Dec financials, CapitaLand Investment Management AUM would be ~S$115 Billion, poising it as the largest Real Estate Investment Manager in Asia by AUM.

<ul>
<li>S$78 Billion of AUM is associated with the Funds Management segment which includes the managers of all the listed real estate investment trusts (REITs) and business trusts, as well as selected unlisted funds currently managed by CapitaLand,</li>
	<li>S$28 Billion of AUM is the Full stack lodging management business, which encompasses the serviced residence management platform under The Ascott. As noted by CapitaLand, Ascott is a leading international lodging owner-operator with portfolio spanning more than 30 countries globally. To date it has about 70,000 operating units and close to 53,000 units under development, making a total of about 123,000 units in over 770 properties.</li>
	<li>S$10 billion of AUM of high-quality, income-generating investment properties.</li>
</ul>
 

Subject to approvals, the transaction is expected to be completed in the final quarter of 2021. CapitaLand’s diversified portfolio and full value chain of real estate capabilities will continue to be its strength with multiple instances of disciplined asset recycling over the past two years. 
Market participants will also be looking to FTSE Russell for ramifications on the STI at a later date, and the degree to which the Section 7.4 guidelines on mergers, restructuring and complex takeovers may apply (click <a href="https://research.ftserussell.com/products/downloads/Straits_Times_Index_Ground_Rules.pdf?_ga=2.158605370.1083827588.1616464314-875071171.1608699665">here</a> for more).   CapitaLand is a significant cornerstone of the Singapore stock market. The six-listed Singapore stocks (comprised of CapitaLand, three REITs, a Business Trusts and Stapled Trust) have contributed as much as 9% (S$130M) of the daily turnover in the Singapore stock market this year. Over the first 11 weeks of 2021, the six stocks averaged 4% total returns in-line with the 3% median gain for all listed REITs across the APAC region. CapitaLand listed the first REIT on SGX in 2002. 
The five relevant Singapore-listed trusts are tabled below, with the 4% gains in the 2021 year to 22 March, bringing their average ten year total return, which assumes reinvested dividend distributions, to 145%.

<table class="table table-striped"><tbody>
<tr>
<td>
			Name
			</td>
			<td>
			Code
			</td>
			<td>
			Mkt Cap S$M
			</td>
			<td>
			Total Return 2021 YTD
			</td>
			<td>
			10 Year Total Return %
			</td>
			<td>
			Current P/B (x)
			</td>
			<td>
			Current Div. Yield
			</td>
			<td>
			Gearing Ratio
			</td>
		</tr>
<tr>
<td>
			CapitaLand Integrated Commercial Trust
			</td>
			<td>
			C38U
			</td>
			<td>
			14,112
			</td>
			<td>
			1.7%
			</td>
			<td>
			112%
			</td>
			<td>
			1.1
			</td>
			<td>
			4.0%
			</td>
			<td>
			40.6%
			</td>
		</tr>
<tr>
<td>
			Ascendas REIT
			</td>
			<td>
			A17U
			</td>
			<td>
			12,797
			</td>
			<td>
			3.9%
			</td>
			<td>
			200%
			</td>
			<td>
			1.4
			</td>
			<td>
			4.8%
			</td>
			<td>
			32.8%
			</td>
		</tr>
<tr>
<td>
			Ascott Residence Trust
			</td>
			<td>
			HMN
			</td>
			<td>
			3,363
			</td>
			<td>
			1.9%
			</td>
			<td>
			94%
			</td>
			<td>
			1.1
			</td>
			<td>
			2.8%
			</td>
			<td>
			36.3%
			</td>
		</tr>
<tr>
<td>
			CapitaLand China Trust
			</td>
			<td>
			AU8U
			</td>
			<td>
			2,116
			</td>
			<td>
			0.4%
			</td>
			<td>
			119%
			</td>
			<td>
			0.9
			</td>
			<td>
			4.6%
			</td>
			<td>
			31.8%
			</td>
		</tr>
<tr>
<td>
			Ascendas India Trust
			</td>
			<td>
			CY6U
			</td>
			<td>
			1,704
			</td>
			<td>
			10.2%
			</td>
			<td>
			202%
			</td>
			<td>
			1.4
			</td>
			<td>
			5.8%
			</td>
			<td>
			30.0%
			</td>
		</tr>
</tbody></table>
 Source: SGX, Refinitiv, Bloomberg (Data as of 22 March 2021), Company Financials Yield, note gearing ratio as of 28 Feb 2021. Nolte table does not include CapitaLand Malaysia Mall Trust. 
CapitaLand is one of Asia’s largest diversified real estate groups. Headquartered and listed in Singapore, it owns and manages a global portfolio worth about S$132.5 billion as at 31 December 2020. CapitaLand commenced trading on the mainboard of Singapore Exchange back on 21 November 2000, with DBS Land de-listed on the same day. This followed an EGM in October 2000 with the majority shareholders voting in favour of the merger between DBS Land and Pidemco Land – to form CapitaLand, which would become the largest listed property company in Southeast Asia.
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CapitaLand opened 21% higher this morning at S$3.99, following the announcement of a strategic restructure of the two distinct property sides of the business - listing the more capital efficient investment management business and privatising the more capital intensive development business. 
	 
	
Poised to create shareholder value, APAC-listed Real Estate Managers trade on average at valuation multiples that are higher than Real Estate Developers. The scheme of arrangement will privatise CapitaLand in exchange for Scrip in CapitaLand Investment Management (“CLIM”) and CICT, and a cash consideration.   
	 
	Just four weeks ago, CapitaLand highlighted its fund management business was a key pillar. The CFO noted the funds AUM grew 5.3% YoY in FY20 and the Group remained on track to deliver S$100 billion of AUM, and optimistic of further AUM growth from a balance sheet and operational perspective.

 

CapitaLand opened up 21% at this S$3.99 this morning following the announcement of a strategic restructure of the two distinct property sides of the business - the funds management side and the development side of the business. The transaction, subject to approvals, will be carried out via a scheme of arrangement that provides CapitaLand shareholders an implied consideration of S$4.102 including:


69% of S$4.102 will be in CapitaLand Investment Management Scrip
	23% of the S$4.102 will be in a cash distribution.
	8% of the S$4.102 will be in CapitaLand Integrated Commercial Trust units

 

Eligible Shareholders are expected to receive S$4.102 per share in cash and scrip for every one CapitaLand share they own. Prior to the announcement the stock was trading at S$3.31.  For full details of the transaction, click here.  The strategic restructure of the listed CapitaLand entity is consistent with CapitaLand 3.0 objectives. As reiterated by the Group in recent years CapitaLand 3.0 is about “Creating long-term shareholder value by targeting sustainable return on equity above the cost of equity”. Back in early 2019, the Group noted with the Ascendas-Singbridge transaction that one of its four key objectives at the time was accelerated growth of income, by growing the asset management business further to transform into a global real estate asset manager.  
More recently with the FY20 results, CEO Lee Chee Koon did note that COVID-19 disrupted but wouldn’t change the plans for CapitaLand to become a globally competitive asset manager and real estate company, and added the Group would continue to capitalise on new opportunities to further transform its business. CapitaLand’s CFO Andrew Lim also noted at the virtual FY20 results briefing (click here) that the fund management business of CapitaLand is a key pillar, and amid the challenges, fund AUM grew 5.3% year-on-year in FY20.  
Mr Lim added the group remained on track to deliver S$100 billion Funds AUM, and the target was now well in reach, and the Group was optimistic from a balance sheet and operational perspective it could grow the AUM further. Mr Lim also inferred that the strategic reorganization of the REIT businesses over the past two years has provided the foundation for the Group to be a global real estate asset manager.  
Securitisation of Real Estate assets across the globe has also intensified over recent years, to the point that large index providers and the global organisations that classify stocks have established Real Estate as its own Sector, with distinct its own sub-industries, as opposed to being a subset of Financial Services. The strategic restructure potentially posies the new entity, CapitaLand Investment Management to be the largest listed Real Estate Investment Manager by AUM in Asia Pacific, and among the top three global Real Estate Investment Manager by AUM across the world, based on data available through 2020.  CapitaLand Investment Management (“CLIM”)  
The new entity CapitaLand Investment Management will be a fully integrated Real Estate Investment Manager with funds and property management capabilities (managers of all the REITs and business trusts), in addition to private and listed funds - CapitaLand Development will be the private entity providing for flexibility to pursue capital large scale, multi-phased intensive projects and longer gestation projects, and incubate new businesses such as data centres.   The strategic restructure of CapitaLand is looking to capture more value for shareholders by listing the, capital efficient, investment management business and privatising, the capital intensive, development business, the Group is looking to create shareholder value. Developers and investment managers are distinctly different businesses with different industry objectives. Real Estate Developers generally look to build or redevelop, in some instances large scale projects than can span property market cycles, whilst Real Estate Investment Managers take charge of the developed property, managing it in the most efficient way to generate income. APAC Real Estate Managers do currently maintain higher valuations than Developers:


Real Estate Managers across APAC are currently trading at a median 10% discount to book value, which is up from a 15% discount to book value at the end of 2019, while on a less relevant P/E basis they are trading at 16x multiple up from a 15x multiple at the end of 2019.
	Real Estate Developers across APAC are currently trading at a 25% discount to book value, which is the same discount they were trading at the end of 2019. On a P/E basis, they are trading an 11x multiple, up from a 10x multiple at the end of 2019.
	Note these are indicative comparisons that incorporate not just regional peers, but managers and Developers of all sizes.
	On a NAV basis, Mr Lee noted yesterday that listed Real Estate Investment Managers generally trade at a premium to their NAVs in the capital markets.

 Based on 31 Dec financials, CapitaLand Investment Management AUM would be ~S$115 Billion, poising it as the largest Real Estate Investment Manager in Asia by AUM.


S$78 Billion of AUM is associated with the Funds Management segment which includes the managers of all the listed real estate investment trusts (REITs) and business trusts, as well as selected unlisted funds currently managed by CapitaLand,
	S$28 Billion of AUM is the Full stack lodging management business, which encompasses the serviced residence management platform under The Ascott. As noted by CapitaLand, Ascott is a leading international lodging owner-operator with portfolio spanning more than 30 countries globally. To date it has about 70,000 operating units and close to 53,000 units under development, making a total of about 123,000 units in over 770 properties.
	S$10 billion of AUM of high-quality, income-generating investment properties.

 

Subject to approvals, the transaction is expected to be completed in the final quarter of 2021. CapitaLand’s diversified portfolio and full value chain of real estate capabilities will continue to be its strength with multiple instances of disciplined asset recycling over the past two years.  
Market participants will also be looking to FTSE Russell for ramifications on the STI at a later date, and the degree to which the Section 7.4 guidelines on mergers, restructuring and complex takeovers may apply (click here for more).    CapitaLand is a significant cornerstone of the Singapore stock market. The six-listed Singapore stocks (comprised of CapitaLand, three REITs, a Business Trusts and Stapled Trust) have contributed as much as 9% (S$130M) of the daily turnover in the Singapore stock market this year. Over the first 11 weeks of 2021, the six stocks averaged 4% total returns in-line with the 3% median gain for all listed REITs across the APAC region. CapitaLand listed the first REIT on SGX in 2002.  
The five relevant Singapore-listed trusts are tabled below, with the 4% gains in the 2021 year to 22 March, bringing their average ten year total return, which assumes reinvested dividend distributions, to 145%.




			Name
			
			
			Code
			
			
			Mkt Cap S$M
			
			
			Total Return 2021 YTD
			
			
			10 Year Total Return %
			
			
			Current P/B (x)
			
			
			Current Div. Yield
			
			
			Gearing Ratio
			
		


			CapitaLand Integrated Commercial Trust
			
			
			C38U
			
			
			14,112
			
			
			1.7%
			
			
			112%
			
			
			1.1
			
			
			4.0%
			
			
			40.6%
			
		


			Ascendas REIT
			
			
			A17U
			
			
			12,797
			
			
			3.9%
			
			
			200%
			
			
			1.4
			
			
			4.8%
			
			
			32.8%
			
		


			Ascott Residence Trust
			
			
			HMN
			
			
			3,363
			
			
			1.9%
			
			
			94%
			
			
			1.1
			
			
			2.8%
			
			
			36.3%
			
		


			CapitaLand China Trust
			
			
			AU8U
			
			
			2,116
			
			
			0.4%
			
			
			119%
			
			
			0.9
			
			
			4.6%
			
			
			31.8%
			
		


			Ascendas India Trust
			
			
			CY6U
			
			
			1,704
			
			
			10.2%
			
			
			202%
			
			
			1.4
			
			
			5.8%
			
			
			30.0%
			
		

 Source: SGX, Refinitiv, Bloomberg (Data as of 22 March 2021), Company Financials Yield, note gearing ratio as of 28 Feb 2021. Nolte table does not include CapitaLand Malaysia Mall Trust.  
CapitaLand is one of Asia’s largest diversified real estate groups. Headquartered and listed in Singapore, it owns and manages a global portfolio worth about S$132.5 billion as at 31 December 2020. CapitaLand commenced trading on the mainboard of Singapore Exchange back on 21 November 2000, with DBS Land de-listed on the same day. This followed an EGM in October 2000 with the majority shareholders voting in favour of the merger between DBS Land and Pidemco Land – to form CapitaLand, which would become the largest listed property company in Southeast Asia.



CapitaLand's Strategic Restructure to CapitaLand Investment Management 

Malaysia

Capitaland Malaysia Trust is a real estate investment trust. The Company focuses on long-term investments in income-producing real estate primarily used for retail, commercial, office and industrial purposes. Capitaland Malaysia Trust serves customers in Malaysia.

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Capitaland Malaysia Trust (CLMT MK)

CapitaLand's Strategic Restructure to CapitaLand Investment Management

CapitaLand opened 21% higher this morning at S$3.99, following the announcement of a strategic restructure of the two distinct property sides...

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