Towards Financial Freedom
CAPITALAND - Potential REIT policy risks: marginal impact
TRADING BUY. We noted news sources recently citing potential new REIT guidelines affecting the external REIT manager model adopted by the S-REITs which would likely have a minimal impact on CapitaLand in our view. CapitaLand as a beta stock has also corrected significantly with recent macro woes, which presents a good entry opportunity. As such we upgrade the stock to TRADING BUY with unchanged TP of S$2.82.
Breakdown of the external REIT manager model? According to recent press reports, the authorities may be studying new REIT guidelines to improve the market value and corporate governance of S-REITs. We believe this may have been triggered by recent REIT acquisitions which raise questions on the external REIT manager model currently adopted by S-REIT sector.
Neutral for CapitaLand's asset recycling business model in our view. CapitaLand is currently one of the largest REIT managers in Asia, with an AUM of c.S$22.3bn. While the prospect of potential new REIT guidelines is likely still preliminary; we believe the direct impact of any potential S-REIT sector shift to the internal REIT manager model through the loss of REIT management fee income would likely be relatively low (c.6% of FY11 revenue). We also see neutral impact on CapitaLand's business model and value creation, given CapitaLand's already aligned interest with REIT unitholders to offer its stable of REITs with attractive yield accretive acquisitions. This is to ensure the REIT platform continues as a viable exit option for its large scale assets.
Beta stock a victim of macro woes. With the current macro headwinds, CapitaLand as a relatively high beta stock (beta of c.1.3) also corrected significantly by c.19% off its 2012 peak. Although longer term outlook remains uncertain, we believe at current levels CapitaLand as a liquid blue-chip stock may present an entry opportunity for investors trading at c.0.7 P/B and c.0.6 P/RNAV.
Source: OSK
Breakdown of the external REIT manager model? According to recent press reports, the authorities may be studying new REIT guidelines to improve the market value and corporate governance of S-REITs. We believe this may have been triggered by recent REIT acquisitions which raise questions on the external REIT manager model currently adopted by S-REIT sector.
Neutral for CapitaLand's asset recycling business model in our view. CapitaLand is currently one of the largest REIT managers in Asia, with an AUM of c.S$22.3bn. While the prospect of potential new REIT guidelines is likely still preliminary; we believe the direct impact of any potential S-REIT sector shift to the internal REIT manager model through the loss of REIT management fee income would likely be relatively low (c.6% of FY11 revenue). We also see neutral impact on CapitaLand's business model and value creation, given CapitaLand's already aligned interest with REIT unitholders to offer its stable of REITs with attractive yield accretive acquisitions. This is to ensure the REIT platform continues as a viable exit option for its large scale assets.
Beta stock a victim of macro woes. With the current macro headwinds, CapitaLand as a relatively high beta stock (beta of c.1.3) also corrected significantly by c.19% off its 2012 peak. Although longer term outlook remains uncertain, we believe at current levels CapitaLand as a liquid blue-chip stock may present an entry opportunity for investors trading at c.0.7 P/B and c.0.6 P/RNAV.
Source: OSK
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