EUR 850.00 For Business Accounts Only

Morningstar | Underlying Operational Metrics Performing Well in CapitaLand's 1Q Results

Our fair value estimate of SGD 4.20 for narrow-moat rated CapitaLand is unchanged after the first-quarter results, and we continue to see value in the property conglomerate. First-quarter operating profit after tax and minority interest was lower at SGD 229 million, attributable to a lower number of residential units sold in Singapore and China. Residential components are cyclical, and the key focus, in our view, is the recurring income from office, malls, and lodging business. All are performing well. The mall platform saw strong operational metrics with a 2.1% and 7.3% increase in shopper traffic in Singapore and China, respectively, translating into a 2.6% and 6% increase in tenant sales growth. Our recent tour of the newly opened Jewel at Changi airport reinforces our view of CapitaLand’s strength as a mall operator. Its Singapore office properties, mainly held in CapitaLand Commercial Trust, remain resilient with near full occupancy. Improving demand and normalised supply will underpin rental growth and positive retail revision in the medium term. For office properties in China, the average rental increase was 5% in the first quarter. A Grade A office building in the core CBD in Lujiazhui in Shanghai was acquired in the first quarter. For the lodging division, overall revenue per available unit of service apartment in the first quarter increased 4%.

The key focus for CapitaLand in the medium term is the integration of Ascendas-Singbridge, or ASB, which received an overwhelming approval by shareholders at the extraordinary general meeting in April. The deal will close in the third quarter of this year, and we reiterate our positive view on the transaction. The acquisition will result in diversification by adding a real estate type in industrial properties, in geographies CapitaLand already has operations in, and in new geographies with sizable operations. We again note the industrial property segment is broad with ASB’s properties mainly consisting of higher quality Science and Business Parks, data centres, and logistics. The deal will have an immediate impact on existing projects. One case is the China-Singapore Guangzhou Knowledge project, where phase 2 of the project is a mixed-use business parks and residential. CapitaLand can contribute its expertise on the residential component--a property type in which ASB lacks capability.