CapitaLand Limited (SGX: C31) released its fourth quarter and full-year earnings on Tuesday morning. The reporting period was from 1 January 2014 to 31 December 2014. CapitaLand, one of Asia’s largest real estate companies, has a diverse portfolio consisting of five integrated developments, 86 operational malls, 25,700 operational serviced residence units, and 10 commercial buildings. While its core markets are Singapore and China, the company has marked developing countries like Vietnam, Malaysia, and Indonesia as its new growth markets. CapitaLand has divided its business into 5 Strategic Business Units (SBUs), namely, Capitaland Singapore, Capitaland China, CapitaMalls Asia, Ascott, and Corporate and Others….
CapitaLand Limited (SGX: C31) released its fourth quarter and full-year earnings on Tuesday morning. The reporting period was from 1 January 2014 to 31 December 2014.
CapitaLand, one of Asia’s largest real estate companies, has a diverse portfolio consisting of five integrated developments, 86 operational malls, 25,700 operational serviced residence units, and 10 commercial buildings.
While its core markets are Singapore and China, the company has marked developing countries like Vietnam, Malaysia, and Indonesia as its new growth markets.
CapitaLand has divided its business into 5 Strategic Business Units (SBUs), namely, Capitaland Singapore, Capitaland China, CapitaMalls Asia, Ascott, and Corporate and Others.
With these as a backdrop, let’s take a look at CapitaLand’s latest set of financials.
For the year, total revenue advanced 11.8% to S$3.92 billion while total PATMI (profit after tax and minority interests) soared 38.2% from S$840.2 million a year ago to S$1.16 billion.
The good set of results on the top-line end were “mainly attributable to the revenue recognition of $579.4 million from the sale of all the office strata units in Westgate tower” as well as “higher revenue from… development projects in Singapore as well as… shopping mall and serviced residence businesses.”
On the bottom-line, the jump in profit is attributable to various factors including improved operating PATMI, higher revaluation gains from investment properties, and lower portfolio losses.
CapitaLand ended 2014 with a net asset value of S$3.94 per share, up from the restated book value of S$3.79 at end-2013.
With the big picture covered, let’s make our way to the individual SBUs.
Results at the Capitaland Singapore SBU were fairly decent, with EBIT (earnings before interest and taxes) for the whole of 2014 up 7% year-on-year to S$802.7 million on the back of higher revaluation gains and gains from the aforementioned sale of Westgate Tower. The positives were partially offset by impairments though.
Meanwhile, for the Capitaland China SBU, EBIT grew by 6% to SS$409.1 million due to various factors such as higher share of associates’ and joint ventures’ operating results, reversal of cost accruals upon finalisation, and lower impairment losses.
EBIT from the CapitaMalls Asia SBU swelled 12% to S$945.2 million in 2014 as compared to S$844.9 million from a year ago. This comes on the back of contributions from Westgate Tower (both CapitaLand Singapore and CapitaMalls Asia benefitted from the sale of Westgate Tower as it is jointly-owned by the two SBUs) and better performance from the malls in Singapore and China.
The CapitaMalls Asia SBU also has three retail-focused real estate investment trusts under its umbrella, namely CapitaMall Trust (SGX: C38U), CapitaRetail China Trust (SGX: AU8U), and CapitaMalls Malaysia Trust. Performance was healthy across the trio as overall occupancy rates continued to stabilize at more than 95%.
That said, CapitaMall Trust, despite enjoying higher gross revenue and distributions, actually saw its shopper traffic and tenants’ sales fall. This could be something to watch if it develops into a long-term trend.
The Ascott SBU, which deals with serviced residences around the globe, is partially represented by CapitaLand’s ownership and management of Ascott Residence Trust (SGX: A68U). In 2014, the Ascott SBU’s EBIT decreased by 8% to S$297.5 million primarily due to lower fair value gains on its properties.
Last but not least, we have the Corporate and Others SBU, which houses CapitaLand’s investments in Surbana and StorHub, the company’s financial products & services, and other businesses in Vietnam, Japan, and the GCC (Gulf Cooperation Council) countries.
In comparison with the other four SBUs, Corporate and Others is considered a minor part of CapitaLand with revenue of only S$184.9 million. Nevertheless, it has managed to improve its EBIT from a loss ofS$46.5 million to a loss of S$17.5 million. The stronger showing came on the back of higher revenue among other factors.
Financial position and dividends
As of 31 December 2014, Capitaland’s balance sheet remains robust, although it’s a tad weaker compared to year ago.
For instance, CapitaLand ended 2014 with S$2.7 billion in cash and a net debt to equity ratio of 0.57, these are down from 2013’s restated figures of S$6.3 billion and 0.39. The lower cash balance and higher leverage ratio is largely due to the privatization of Capitamalls Asia in mid-2014.
Furthermore, it’s worth noting that CapitaLand has undrawn facilities of S$3.0 billion – this leaves ample room for the company to take on more debt to explore acquisitions and business expansion if needed.
CapitaLand has proposed a dividend of 9 cents per share for the whole of 2014. This is an increase from 8 cents seen in 2013.
Outlook and valuation
As there are many moving cogs in CapitaLand’s business with the different SBUs, let’s go through the company’s future growth plans with the individual SBUS.
On CapitaLand Singapore’s residential segment, the picture doesn’t look too bright. In 2014, the sales value of units sold had collapsed by 77% from S$2.44 billion in 2013 to just S$561 million.
Investors might want to note that things on that front are not likely to change course anytime soon as Singapore’s government has no immediate plans to loosen the property market here. But, to place things into context, CapitaLand pointed out that its S$2.8 billion exposure to Singapore’s residential real estate market is less than 9% of total assets.
In CapitaLand China, the SBU has a healthy pipeline of close to 9,000 residential units ready to be launched in the year 2015. But, a note of caution is perhaps warranted here.
In 2012, CapitaLand China’s sales value of residences was RMB9.22 billion; in 2013, it had dropped to RMB8.67 billion; in 2014, the figure was still lower at RMB7.55 billion. Like Singapore, China’s also experiencing a softer real estate market and that could be something for investors to watch.
As for CapitaLand China’s retail operations, the picture is promising as the SBU has a net property yield on cost of 7.3% based on a broad-based improvement across its portfolio of 64 malls.
Moving on to the Ascott SBU, despite its drop in profit in 2014, there is a huge pipeline of units under development (25,700 units are currently operational while 12,600 units are under development) with an estimated 2,200 units to be operational in this year.
Ascott has a short-term goal of hitting 40,000 units in its inventory by this year and that’s a target which the SBU is on course to hit given that it has a the total of 38,300 units currently which are either operational or under development.
Over the longer-term, Ascott aims to have 80,000 units in its inventory. Ascott’s recent attempt to expand its Australian business through a strategic partnership with Quest Serviced Apartments –a major Australian-player in the serviced apartments space – could go some ways in helping the SBU meet its long-term goal.
This wraps up CapitaLand’s future outlook for the individual SBUs. On a company-level, we can turn to Lim Ming Yan’s comments in CapitaLand’s earnings release; Lim’s the President & Group Chief Executive Officer of the company:
“CapitaLand is now able to operate more efficiently, allowing us to reap synergistic benefits as ONE CapitaLand. Moreover, this simplified structure reinforces CapitaLand’s investment proposition as a single listed developer integrated across asset classes. This provides a good balance between recurring and development income. CapitaLand will continue its capital management strategy using the listed real estate investment trusts (REITs), funds and various capital market platforms, as well as growing its assets under management.”
On a final note, with the possibility of rising interest rates, it’s crucial for investors to keep track of changes in the company’s balance sheet.
At its closing price of $3.63 yesterday, Capitaland traded at around 14 times its latest trailing earnings and 0.9 times its latest book value. Shares of CapitaLand also have a trailing-12-months dividend yield of 0.8%.
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