Capitaland Investment

[Shiyi]

Can anyone enlighten me the meaning of "yield accretive" acquisition?
In the case of the latest acquisition of lyf Funan, the acquisition yield is 4.7%. But the dividend yield for unit holders is around 6.7%. How is it that it is yield accretive?

[owq]

Can anyone enlighten me the meaning of "yield accretive" acquisition?
In the case of the latest acquisition of lyf Funan, the acquisition yield is 4.7%. But the dividend yield for unit holders is around 6.7%. How is it that it is yield accretive?

You're looking at different things. From the announcement, the EBITDA yield for acquisition is 4.7% and for divestment it is 3.2%. The DPS increases by 1.5%. Dividend yield is a per-share measure which depends on unit price.

[weijian]

Can anyone enlighten me the meaning of "yield accretive" acquisition?
In the case of the latest acquisition of lyf Funan, the acquisition yield is 4.7%. But the dividend yield for unit holders is around 6.7%. How is it that it is yield accretive?

Hi Shiyi,

Acquisition yield does not necessarily have to be higher than the dividend yield for it to be accretive. We can think of dividend yield as the "cost of equity". In order to be accretive, the acquisition yield has to be > than the "cost of equity" when equity is required to fund the acquisition.

In this particular case, no new equity is raised. But of course, this still does not explain exactly why. I think the below statement in the announcement should make things clearer:

The entry yield is attractive at 150 basis points higher compared to the exit EBITDA yield4 of Citadines Mount Sophia Singapore of 3.2% for FY 2023. Following the Proposed Acquisition and taking into account the Citadines Mount Sophia Divestment, CLAS’ total distribution is expected to increase by S$3.5 million, which translates to a DPS accretion of 1.5% on a FY 2023 pro forma basis.

In essence, the comparison of "accretive-ness" is done by comparing lyf Funan (higher cap rates) with Citadines Mount Sophia's performance (low cap rates), since this is an asset recycling sort of move. We can also imagine that we swap 100k worth of [email protected]% with 6 months [email protected]% - Our 1million portfolio, let's say have a 5% yield (thanks to REITs) before the swap, will now have yield>5% post-swap, isn't it?

[EnSabahNur]

https://www.mingtiandi.com/real-estate/f...c-capital/

CapitaLand Investment Ltd has struck a deal to expand its fund management business with the proposed acquisition of Singapore-based real estate investment manager SC Capital Partners, tripling its funds under management in Japan while growing its business across Asia Pacific.

Under the terms of an agreement announced Wednesday, the Temasek Holdings-backed goliath will acquire an initial 40 percent stake in the firm led by Thai financier Suchad Chiaranussati for S$280 million ($214 million) in cash, with options to acquire two additional 30 percent stakes on the third and fifth anniversary of the transaction closing date, subject to the fulfillment of conditions. The two firms expect the initial investment to close in the first quarter of 2025, subject to regulatory approvals, with CapitaLand Investment attaining full ownership by 2030.

Chiaranussati, who will retain full autonomy over the business until CapitaLand Investment completes its acquisition of the remaining 60 percent stake in the fund manager, pointed to the partnership as enabling the firms to capitalise on growth opportunities and dislocations in Asia Pacific’s property markets.

[EnSabahNur]

https://www.mingtiandi.com/real-estate/o...s-wingate/

Singapore’s CapitaLand Investment is reportedly close to acquiring Melbourne-based fund manager Wingate Group, as the Temasek-backed giant carries out a strategic realignment with Australia as a focus market.

The two sides have been in talks for at least three months with a focus on the private credit and commercial property units of Wingate, a 20-year-old firm with A$8 billion ($5.2 billion) in funds under management, according to a Monday article by the Australian Financial Review.

AFR said a deal was originally expected in August but is yet to be signed after talks dragged. The deal size is likely to be comparable to Regal Partners’ A$235 million acquisition of Melbourne-based private credit specialist Merricks Capital in June, the report said.

A CapitaLand representative had no comment on the AFR report when contacted Monday, saying only that the Singaporean firm would “make an announcement when there are material developments.” Wingate had not responded to Mingtiandi’s inquiries at the time of publication.

Rebalancing Act
As part of its Investor Day festivities last week, SGX-listed CapitaLand Investment announced Thursday that it was committing up to A$1 billion to increase its funds under management in Australia and hiring two Credit Suisse veterans to lead the charge.

[weijian]

A 141mil loss (103mil non-cash) is a relatively big loss as CLI takes the bite to align to its strategy, thereby realizing its FVOCI losses. The tangible benefit is that a more heavily geared CLAS's balance sheet is deconsolidated, resulting in a "cleaner and clearer" CLI balance sheet and P/L. The 24% remaining stake (just shy of 25% to revert the accounting) probably suggest that there will be no rights issue for shareholders in the near/medium term where CLI as the sponsor, has to support/backstop them. Any capital raising will be through private placement or debt.

CLMT (Capitaland Malaysia Trust) is the next one to be dealt with as CLI still holds a ~41% stake and so is also consolidated on the BS. While the FUM is several times smaller than CLAS but there are probably more FVOCI losses in % times from MYR depreciation.

SALE OF APPROXIMATELY 4.88% INTEREST IN CAPITALAND ASCOTT TRUST

Following the Transaction, CLI Group’s holdings in CLAS has decreased from approximately 28.92% to approximately 24.04%. Consequently, CLAS will cease to be a subsidiary, and will instead be accounted as an associate, of CLI Group.

Due to the Transaction and the consequential change in accounting treatment for CLAS, CLI Group expects to record a loss of approximately S$141 million2 in respect of the Transaction. Of this amount, approximately S$103 million is non-cash in nature and includes, amongst others, the realisation of foreign currency translation losses and remeasurement of retained stake, as required under the applicable accounting standards.

https://links.sgx.com/FileOpen/Annc_Fina...eID=828373

[tonylim]

How much profit can CLI reap by selling the ION asset to CICT ? I tried to search but to no avail, many thanks in advance .

[CY09]

Payment to the Retail property manager which is Capitaland is: 2% per annum of the net property income

Payment to the REIT manager annually is 0.25% of the property appraised value + 4.25% of the net property income.

Ion is valued at $3,697 million, NPI is about $258 million.

So the retail property manager arm earns $5million
REIT manager earns $9.2million+$11 million annually

All in if Ion had 100% been sold, Capland Investment earns an annual recurring fee of say $25.2 million in revenue. Profit wise I am not sure how much because there is also the profit component of sale price- development cost-land cost- interest expense

[weijian]

Payment to the Retail property manager which is Capitaland is: 2% per annum of the net property income

Payment to the REIT manager annually is 0.25% of the property appraised value + 4.25% of the net property income.

Ion is valued at $3,697 million, NPI is about $258 million.

So the retail property manager arm earns $5million
REIT manager earns $9.2million+$11 million annually

All in if Ion had 100% been sold, Capland Investment earns an annual recurring fee of say $25.2 million in revenue. Profit wise I am not sure how much because there is also the profit component of sale price- development cost-land cost- interest expense

Hi CY09,

It might be more nuanced than that. There are 2 components to any sort of gains - operating gains (recurring) and fair value gains (one time):

First and foremost, Ion Orchard is accounted for as a JV in CLI accounts as Orchard Turn Holdings (OTH), and so we have to look at the JV financials for a guide. In addition, if you look back at the transaction from CICT side, it involves buying the 50% stake in the property manager too. So prior to transaction, CLI "earns" (which is actually savings) property management fees as part of the internal property management structure. Post transaction, CLI does not earn anything.

Doing a quick proforma check with on FY23 data:

Operating Gains (Recurring)
- Prior to transaction, let's not forget CLI derive earnings from ownership too. And this earnings from ownership is much larger than the AUM fees.

- From CLI AR23's note 8, PATMI of owning the property: 207mil or ~103.5mil for 50% stake. Take note that since this is JV, the PATMI is at JV level and hence not consolidated in CLI's accounting. Therefore, the above earnings is net of all interest/depreciation costs. 

If this is net off from the AUM fees (~20mil) as you calculated, the net loss in recurring income will be 103.5mil - 20mil = -83.5mil


Fair Value Gain (One Time)
- Acquisition price of property: S$3,697.0m (as per CICT's Sept2024 announcement)

- Non current asset of Orchard Turn Holdings: S$3,392.0m (unfortunately, I can't find Ion Orchard valuation and so used the non-current asset as per CLI AR23's note 8 as approximation)

- Fair Value Gain 3697mil - 3392mil ~305mil or ~152.5mil for 50% stake

- Of course, the above are accounting numbers. One could also expect the JV to declare some of the "excess cash" from the BS (already recognized as P/L earlier) before the transaction completed. But that's not a lot.

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So in essence, a change in the business model is not really about earnings. Matter of fact, earnings reduce. The bigger picture is about capital efficiency, as the free-up ~1bil looks for new business lines. The "loss in recurring earnings" will be eventually replaced by new business lines, hopefully with better efficiency and hence "quality" resulting in a multiple re-rating by Mr Market. This switch obviously doesn't happen over night nor is it easily evident on the financial statements.

[tonylim]

Hi CY09 and Weijian ,

Many thanks for your immediate replies. So the one-off gain from disposing the 50% stake in Ion is about S$152.5m . This could be the reason why the company did not give a profit guidance for this FY , unlike FY2023.
The CFO Paul Tham said in the half year result briefing and their investors day , that the 12 cents dividend was sustainable , even up to 18 cents was also manageable . He even said they did the SBB because they felt the share price was undervalued and asked the investors to hold them for 3 to 6 months . It seemed JP Morgan wasn't happy with the performance of the company .