Posted by: donmihaihai | February 3, 2019

Sad story of CapitaLand

A proposed $6 billion acquisition with $3 billion fund by issuance of new shares. With enterprise value at about $11 billion, total assets should be around the same.

Base on latest available financials, Capitaland has about $63 billion of assets and equity of almost $33 billion of which less than $19 billion belong to shareholders.

A transformation acquisition and much inks been written about it.

But the math is telling, spending about 1/3 of its equity with hardly an increase in EPS. Well the estimation is 4%. Hardly beat inflation. Spending doesn’t buy growth.

But it is so called transformation with many fancy charts and numbers being put up. New high growth sectors, leader in AUM, etc etc. Get the feet grounded. Like the storied growth sectors and fund management is certainly attractive with high ROE, bigger AUM usually mean higher ROE. But Capitaland as a group, doesn’t has high ROE, before or if this acquisition is done. Why so? Maybe few questions will answer that. Can Capitaland achieve this AUM without being Capitaland? Can fund management be decouple from the capital intensive side of the business? If the answers are no and no then the AUM is not sexy after all with single digit ROE except good story.

Also it is simple math that issue share below NBV mean decrease in NBV per share while above mean an increase in NBV per share.

Capitaland has always been written as the largest Singapore property company, innovator of Singapore REIT, blue chip REIT sponsor, Aces capital recycling model and big property fund house. But its NBV grew from $2.80 to $4.20 in 17 years (2000 to 2017) plus dividends and distribution of CCT and dividend paid by CCT and grew in CCT NBV only resulted to a NBV of almost $6.00. That is a CAGR of 4.59%. There is double counting in CCT as Capitaland own about 31% of CCT on average so that portion in dividend is retained within Capitaland but the amount is a rounding figure.

Capitaland created not even a 5% CAGR return over 17 years and among the biggest property companies listed in SGX, Capitaland growth in NBV is the slowest. Nothing sexy about capital recycling model after all. Take UOL, another largecap SGX listed co without capital recycle model and a fund house with large AUM, NBV grew from $3.28 to $11.1 during the same period. That is a CAGR of 7.43% and I am not even counting the dividends paid over the year.

Things are clearer now, nice stories which include latest acquisition and lousy numbers which include latest acquisition as well. The numbers look a little better in recent years but well it look real ugly when Capitaland is one of the biggest Asia property fund house.

But I am going to hedge my opinion. If Capitaland is able to achieve a ROE of 10% yearly without destroying shareholder value through corporate moves, then it is a decent company.

 

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