The opening of Jewel Changi Airport has been the speak of the town lately. The new mega-mall situated at Changi Airport features the tallest indoor waterfall (at 40 metres), an indoor forest, and over 280 new outlets and restaurants.
Jewel is 49%-owned by CapitaLand, certainly one of
Asia’s largest actual property corporations, which manages a portfolio of built-in
developments, buying malls, lodging, workplaces, houses, actual estate investment
trusts (REITs) and funds value over S$100 billion.
Whereas Jewel has definitely made it onto the
headlines and Instagram feeds in all places, the larger news for buyers is
CapitaLand’s S$11 billion acquisition of Ascendas-Singbridge (ASB). ASB is a
actual estate firm which manages a portfolio of enterprise/logistics parks,
lodging, business, retail and residential properties value S$20 billion.
The acquisition would see CapitaLand grow to be
the most important real property supervisor in Asia and the ninth largest globally. I invested
4 hours to attend CapitaLand’s annual common meeting to replace myself on
the company’s efficiency and its extraordinary basic meeting to seek out out
extra concerning the Ascendas-Singbridge acquisition.
Listed here are 12 things I discovered from the 2019
CapitaLand AGM and EGM:
1. CapitaLand has a brand new CEO, Lee Chee Koon, who introduced himself to shareholders at the AGM. Lee was CapitaLand’s CIO before taking over the highest submit in September last yr and has been with the Group since 2007. He takes over from former CEO Lim Ming Yan who introduced his retirement final yr and was CEO from 2013. The new CEO has hit the ground operating as he’s coming in at a time when CapitaLand is expanding globally and about to make its largest acquisition so far.
2. Revenue grew 21% year-on-year to S$5.6 billion in FY2018. Profit after tax and minority interests (PATMI) grew 12% year-on-year to S$1.8 billion – the very best during the last 10 years. Return on equity (ROE) has additionally been trending upwards from 6.6% in 2016 to 9.three% in FY2018. The CEO stated the improved outcomes have been resulting from a number of improvement tasks turning operational which at the moment are producing revenue. Apart from the launch of Jewel Changi Airport, CapitaLand is opening Funan mall and Raffles Metropolis Chongqing mall in 2Q 2019 which would contribute further revenue to the Group shifting ahead.
Source: CapitaLand 2019 AGM presentation slides
three. FY2018 dividend is 12 cents per share which works out to around three.four% in dividend yield, based mostly on present CapitaLand’s share worth of S$three.53 (as at eight Might 2019). CapitaLand returned a total of S$842 million to shareholders in FY2018 – S$342 million in share buybacks and the remaining in dividends.
Source: CapitaLand 2019 AGM presentation slides
4. A shareholder noted CapitaLand’s aggressive share buybacks in 2018 and needed to know the administration’s rationale behind selecting between a share buyback versus a dividend as a way of returning capital to shareholders. CFO Andrew Lim stated that that they had extra capital and seen that CapitaLand shares have been undervalued in 2018, which explained the aggressive share buybacks. Nevertheless, dividends are a extra everlasting measure and paying a better dividend would send a signal to buyers that the Group is ready to maintain that degree of dividend over the long term. The CEO added that the Group decided to undertake a prudent stance and keep the dividend for FY2018 because of the ASB acquisition.
5. CapitaLand spends S$150-200 million every year on technological-related bills to ‘future-proof’ its business. These embrace investments in cybersecurity, backend administration methods to enhance productivity, and knowledge analytics to know buyer behaviour higher. The Group additionally invests in loyalty programme apps like CapitaStar to encourage consumers to go to CapitaLand malls, and Ascott Star Rewards which rewards members for staying at Ascott serviced residences.
6. CapitaLand divested S$4 billion of belongings and redeployed $6 billion in capital in FY2018. A shareholder identified that if CapitaLand ‘sells excessive’, it usually has to ‘buy high’ when it redeploys it capital. He needed to understand how management mitigated this problem. The CEO stated that CapitaLand has a bonus as a worldwide company to divest in markets that are costly and redeploy its capital in markets that are cheaper. He added that CapitaLand hasn’t been very aggressive with land tenders in China as the worth of land plots in cities like Shanghai and Beijing was sometime greater than the worth of a accomplished constructing nearby.
7. A shareholder asked how the administration deliberate to mitigate the impression of e-commerce on CapitaLand’s malls. The CEO defined that the department stores are still seeing constructive rental reversions, and have regularly introduced recent retail ideas and invested in loyalty programmes to attract consumers. Nevertheless, he identified that CapitaLand is finally a landlord and not a standard retailer immediately competing with e-commerce gamers. Although e-commerce is growing, the price of supply and logistics is high, and bigger e-tailers are also starting to shift offline as a means for patrons to view and receive their purchases. If a mall is in an excellent location related to move hubs, consumers will continue to patronise it which can appeal to both online and offline retailers to set up store there.
8. CapitaLand ended the yr with a net-debt-to-equity ratio of zero.56, up from 0.49 in 2017. CFO Andrew Lim revealed that the management previously had a target ratio of zero.45 to zero.50, but after discussions with buyers, it was felt that gearing might go larger. The administration is now snug with a net-debt-to-equity ratio of 0.60 to 0.65. The acquisition of Ascendas-Singbridge would briefly deliver the ratio to 0.72, but the administration targets to convey it back right down to zero.64 by end-2020 via capital recycling and retained earnings. Curiosity protection ratio will fall slightly from eight.3 to 7.2, however it’s still strong.
9. CapitaLand is funding the S$6.zero billion purchase consideration of the ASB acquisition by means of an equal amount of debt and new shares issued to the vendor, Temasek. CapitaLand will assume ASB’s debt of S$5 billion which brings the entire acquisition value to around S$11 billion. The new shares might be issued at S$3.50 per share, which is a 7.03% premium over CapitaLand’s last traded worth before the announcement. (CapitaLand shares have risen to around S$three.50 since on the open market.) The acquisition will improve earnings per share by 2.4% to 43.1 cents and ROE by 4.6% to 9.78%. Nevertheless, internet asset value (NAV) per share will probably be diluted from S$four.55 to S$4.36.
Supply: CapitaLand 2019 EGM presentation slides
10. The ASB acquisition will increase CapitaLand’s asset courses to include enterprise/logistics parks, industrial, lodging, business, retail and residential properties in 180 cities across over 30 nations. The CEO believes the acquisition will permit CapitaLand to realize a foothold in the enterprise/logistics parks and industrial phase, particularly in the important thing markets of Singapore, China, India, and Vietnam. He added that it is tougher to enter a new phase from scratch – shopping for property by property – given the size of CapitaLand, and it’s higher for the Group to accumulate a participant like ASB while gaining new talent and capabilities within the process.
11. A shareholder argued that CapitaLand was overpaying for the ASB acquisition while one other requested how long it might take for the Group to earn back the four% loss in NAV per share. The CFO helped to interrupt down the elements of the deal:
- Firstly, CapitaLand can be acquiring
ASB’s property portfolio at NAV — which is a good worth, neither at a premium
nor a reduction. Nevertheless, he pointed out that the NAV of improvement properties are calculated at value (i.e. land worth and
development costs) and that these properties ought to revalue upwards once they turn out to be
operational and start producing revenue.
- Secondly, CapitaLand can be
acquiring ASB’s group of trusts – Ascendas REIT, Ascendas India Belief, and Ascendas
Hospitality Belief — which are public-listed and subsequently have a clear market
value. Because the deal was proposed, the market worth of these trusts have
increased further which suggests CapitaLand has already locked in round S$225
million in good points.
- Lastly, CapitaLand would also
be acquiring ASB’s fund management enterprise at 15.7 occasions equity. He considers this
a fair worth and the acquisition would make CapitaLand the most important REIT supervisor
in Singapore, with eight REITs/enterprise trusts underneath its care.
CapitaLand has grown its NAV per share at
4% on average during the last four years and he believes that the Group can truly
improve its NAV progress because of the potential opportunities within the enlarged
portfolio after acquisition.
12. The CEO brazenly shared that the acquisition would additionally convey certain hurdles. For example, Ascott REIT and Ascendas Hospitality Trust would come instantly into battle almost about their overlapping funding mandates – both trusts personal hospitality properties in Singapore, Japan, and Australia. The administration is discussions with the Financial Authority of Singapore to resolve the battle of pursuits. Attainable options embrace in search of unitholder approval to slender their respective investment mandates, selling one of the trusts, or merging the each of them. The management is reviewing the choices and will make a decision based mostly on one of the best interests of both CapitaLand shareholders and the trusts’ unitholders.
Appreciated our analysis of this AGM? Click on right here to view an entire listing of AGMs we’ve attended »
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