Capitaland's profits could climb 19% over next two years: analyst

Its residential sites in China are expected to bring in $1.28b for the firm.

Capitaland may see its net profits climb 19% between 2018 and 2020 thanks to its overseas acquisitions, China residential sales and the much awaited opening of Changi Jewel, according to UOB KayHian (UOBKH).

The firm's profits rose 13.6% to $362.22m in Q3 from $318.8m in 2017 due to higher operating profits which improved by 13.3% to $233.7m on the back of contributions from investment property acquisitions in Singapore, China and Germany, as well as gains from asset recycling, according to its financial statement.

CapitaLand made its first foray into US multi-family properties in September via the acquisition of 16 Class B freehold properties for $1.14b (US$835m) across Seattle, Portland, Greater Los Angeles and Denver which were said to have yields of 5-5.5%.

The total acquisition cost amounts to $1.16b (US$845m) after factoring in transaction expenses of $14m (US$10m), according to the report. “Since the acquisition will be full funded by fixed-rate debt, we expect only mild earnings accretion of about 0-1.6% between 2018 and 2020,” UOBKH analysts said.

Likewise, the firm expanded its exposure in China by acquiring a 20.85% stake in Shanghai’s tallest twin tower. CapitaLand, through its 41.7% stake in Raffles City China Investment Partners III (RCCIP III) partnered with GIC to purchase Shanghai’s tallest twin towers for $2.54b (RMB12.8b).

Also read: CapitaLand wins bid for two China residential sites at $409.3m

The mixed-use development will comprise of two-storeys of premium Grade A office towers and a seven-storey shopping mall situated on a 4.05 ha site in North Bund Central Business District (CBD). The site has a total office gross floor area (GFA) of 185,800 sqm and retail GFA of 126,917 sqm, the report revealed.

“Management expects physical completion and office space to be introduced in Q2 2019 and the launch of retail space between Q2 and Q3 2019,” the analysts noted. “We estimate a net profit income (NPI) yield of 2-3% during the ramp up phase from H2 2019 to 2020 onwards, before trending to approximately 4% from 2021.”

In addition, Q4 is expected to be a bumper quarter for CapitaLand as the firm is expected to be handing over 7,000 residential units in China valued at $3.17b (RMB15.9) of which will $1.28b (RMB6.4b) will be recognised, the report stated.

Meanwhile, strong pre-commitment levels of around 90% for retail spaces at Jewel Changi are pointing to further positives for CapitaLand in 2019.

Also read: Should incumbent malls be threatened by Jewel Changi and Funan in 2019?

Scheduled to open in early 2019, the mixed-use 10 storey development sits on a 3.5 ha site area with a cumulative GFA total of 137,100 sqm spread out across airport operations facilities (19,500 sqm), indoor gardens and attractions (22,000 sqm), retail (90,000 sqm) and a hotel (5,600 sqm).

“For the retail component, our channel checks suggest that the tenant mix will be geared towards affordable and accessible luxury segments to prevent repetition of tenants from other terminals,” the analysts highlighted. “Average signing rents are estimated at around $20-$30 psf pm.”

According to the report, Jewel will have over 280 tenants of which over 30% are food and beverage (F&B) operators. Tenants will include Nike, Pokemon Centre, design retailer Naiise, Tiger Beer, gallery store Supermama and artisanal chocolatier Laderach.

Jewel Changi’s hotel component will comprise of 130 rooms over a GFA of 5,600 sqm managed by hotel group Yotel and is estimated to have room rates of approximately $190 per night which is in line with prices at their Orchard operations.