CapitaLand Open End Real Estate Fund (COREF), the flagship regional core-plus fund of CapitaLand Investment (CLI) 9CI -1.24% , has acquired a newly completed, Grade A logistics property in South Korea for $112 million.

 

The acquisition will bring COREF&rsquo s funds under management (FUM) to over $1 billion.

 

The property, Anseong Seoungeun Logistics Centre, comprises two four-storey buildings with basement floors. The property has a total of 60,407 sqm of net leasable area.

 

It is located in the north western region of Anseong, an emerging logistics hub in the Gyeonggi province. The location is said to be well-served by primary expressways providing easy access to Seoul and Greater Seoul. A new expressway, which is expected to be completed by 2024, will add greater accessibility to the property.

 

&ldquo Leveraging our team&rsquo s deal sourcing and execution capabilities and extensive 20-year track record, we secured this high-quality asset at an attractive price through an off-market exercise,&rdquo says Matthew Sohn, head of Korea for CLI. &ldquo We expect logistics supply to moderate significantly in the midterm given rising construction costs, project financing challenges and tighter development restrictions. We see potential in this asset as it has a prime location in the north-western region of Anseong, an up-and-coming submarket that has attracted major logistics companies to set up base and several global investment firms to invest in logistics assets.&rdquo

 

&ldquo This investment complements COREF&rsquo s existing portfolio of 10 office and multifamily assets across Japan, Singapore and Australia and diversifies the portfolio to the resilient South Korean logistics sector,&rdquo adds Simon Treacy, CEO of private equity real estate at CLI. &ldquo Demand for quality logistics facilities in the country is robust and increasing steadily on the back of accelerating e-commerce growth that has resulted in the country having one of the highest ecommerce penetration rates globally. The transaction also aligns with COREF&rsquo s key investment themes, which include capitalising on emerging submarkets in the fund&rsquo s target developed countries and the growing dominance of e-commerce.&rdquo

 

&ldquo Asia Pacific continues to benefit from rapid urbanisation and robust economic growth. Since the launch of COREF, we have built a diversified portfolio of 11 quality assets across four countries in Asia Pacific that offer investors attractive risk-adjusted returns. We will continue to leverage our country teams&rsquo on-the-ground expertise to grow our private funds,&rdquo Treacy continues.

 

Since its inception in September 2021, COREF has invested in assets in Australia, Japan and Singapore.

 

SEVERAL research houses have scaled back their target prices for real estate investment manager CapitaLand Investment : 9CI -1.89% (CLI) but remain positive on its valuation and earnings prospects.

 

Maybank Securities cut its price target to S$3.50 from S$3.65, while upgrading its call to &ldquo buy&rdquo from &ldquo hold&rdquo on the view that CLI&rsquo s risk-reward profile is now favourable. 

 

The lower price target comes in the wake of updated FY2023 earnings before interest, taxes, depreciation, and amortisation (Ebitda) forecasts, as well as revised valuations for the group&rsquo s stakes in private funds and listed real estate investment trusts (Reits). 

 

The brokerage has cut its FY2023 and FY2024 Ebitda estimates mostly for fund management after the segment&rsquo s H1 financials were affected by lower performance fees and slow deployment. 

 

It however noted a rebound in the lodging business, and raised its near-term Ebitda estimates for this segment. 

 

On Monday (Aug 14), analyst Krishna Guha said the rating upgrade is based on CLI&rsquo s &ldquo rebounding lodging business, steady stream of fees from an asset-light business model, policy support in China, plateauing interest rates, and reasonable valuation&rdquo . 

 

This is despite continued headwinds and a lack of catalysts, in his view. 

 

While CGS-CIMB maintains its &ldquo add&rdquo recommendation, the brokerage has likewise lowered its target price to S$4.30 from S$4.50 after also cutting its estimates for FY2023 to FY2025 to account for a slower asset monetisation environment. 

 

On Friday, CGS-CIMB analyst Lock Mun Yee said the current cautious dealmaking environment, amid a slower-than-expected China recovery is likely to drag on CLI&rsquo s near-term asset recycling and capital deployment activities. 

 

She nonetheless continues to like CLI for its &ldquo strong recurring fee-income base, which provides good visibility, and its asset-light fund management model&rdquo . 

 

&ldquo Looking ahead, we believe fee-related business revenue could pick up moderately in H2 FY2023, with CLI announcing S$1.3 billion of acquisitions by its listed and private funds (after) June 2023,&rdquo added Lock. 

 

In the same vein, UOB Kay Hian (UOBKH) reduced its target price to S$4.25 from the previous S$4.27.

 

This comes after it also lowered its near-term estimates to account for higher-than-expected financing costs, lower Ebitda margins for the fund management business, and a slower recovery for its China properties. 

 

Although CLI&rsquo s latest set of H1 results fell short of UOBKH&rsquo s and consensus expectations, its analyst Adrian Loh believes the group will &ldquo turn the corner soon&rdquo based on its latest capital recycling achievements. 

 

Loh also highlighted CLI&rsquo s outstanding performance in its lodging segment, which the analyst said was a &ldquo key highlight&rdquo of the group&rsquo s first half financials.  

 

&ldquo High interest rates continue to be a burden on deal-making (for CLI) and its capital recycling target will likely be missed. However, we note the steady contribution of its fee-related earnings,&rdquo said the analyst. 

 

DESPITE the high-interest-rate environment and China&rsquo s slower-than-expected recovery, CapitaLand Investment (CLI) : 9CI -1.55% is &ldquo cautiously optimistic&rdquo about its second half and will remain disciplined in its capital management and acquisitions, it said.

 

On Friday (Aug 11), the real estate giant posted an 18.9 per cent drop in net profit to S$351 million for its first half ended Jun 30, from S$433 million in the previous corresponding period.

 

This was mainly due to lower portfolio gains amid a prudent deal-making environment, which slowed down asset-recycling transactions, CLI said.

 

Speaking at the group&rsquo s H1 2023 financial results briefing, CLI group chief operating officer Andrew Lim said that the group was &ldquo not immune&rdquo to the current high interest rates which have impacted earnings across various listed real estate companies. 

 

He noted that the slowdown in deal-making was a function of the uncertainty over where interest rates are headed, but also that stabilisation may be around the corner soon.

 

Lim said: &ldquo If you look back over 30 years, around the 5 per cent to 6.5 per cent (range) of Fed funds&rsquo rates is where the economy starts to take notice and slows down.  

 

&ldquo If we take history as a guide, I would like to think we are close to peak, which is cause for cautious optimism.&rdquo  

 

Earnings per share stood at S$0.069 for the half year, down from S$0.084 the previous year.

 

Revenue for H1 fell 0.7 per cent to S$1.3 billion, from S$1.4 billion a year earlier, due to a 3.6 per cent decrease in contributions from CLI&rsquo s real estate investment business to S$932 million. 

 

The lower topline was sans revenue contributions from two office properties, which were divested in 2022. The group&rsquo s properties in China also booked lower contributions amid the country&rsquo s slower-than-expected economic recovery.

 

China is CLI&rsquo s second-largest market in terms of earnings before interest, taxes, depreciation and amortisation (Ebitda), with contributions coming in at 18 per cent in H1.

 

Puah Tze Shyang, chief executive officer of CLI (China), said: &ldquo As we move into Q3, hopes of a V-shape recovery (in China) have faded. In the backdrop of weakening global demand, supply chain relocation, moderately low domestic consumption and private sector investment&hellip we do see a lot of companies adopting a fairly cautious approach to business expansion.&rdquo

 

However, he noted that the Chinese government has signalled very strongly that it will do more to boost consumption and private-sector investment, and that CLI&rsquo s investors regard China as a large, urbanising market where there &ldquo are still a lot of opportunities&rdquo .

 

When asked about CLI&rsquo s strategy in China, group chief executive officer Lee Chee Koon said: &ldquo CLI&rsquo s investments in China are really focused on the Tier 1 cities, the key provincial cities where there is strong urbanisation, student growth (and) business activity.&rdquo

 

He said the group will stay focused on investing in a few key markets where it has strong operational capabilities, but in future, it will have to think about where else it should expand in China. 

 

Meanwhile, revenue from CLI&rsquo s fee-income-related business grew 9 per cent year on year to S$519 million, supported by a strong performance from its lodging management and contributions from new management contracts.

 

Revenue per available unit in H1 increased by 32 per cent, boosted by higher occupancy rates recorded from properties in all markets. 

 

Finance costs rose 21.3 per cent year on year to S$239 million due to increased bank borrowings and interest rates.

 

No dividend was declared for the half year, unchanged from the year before.

 

In a separate announcement, CLI said that it raised S$1.3 billion in third-party equity commitment from international institutional investors for three of its private funds.

 

The amount comprises S$870 million for its CapitaLand China Opportunistic Partners Programme, S$134 million for its flagship regional core-plus fund, CapitaLand Open End Real Estate Fund, and S$263 million for its new India business park development fund, CapitaLand India Growth Fund 2.

 

Including CLI&rsquo s own equity contribution, this brings its total equity raised in the year to date to S$3.2 billion, which the group noted was 28 per cent more than the S$2.5 billion in equity raised over the full year of 2022.

 

Funds under management in H1 stood at S$89 billion. CLI&rsquo s listed funds delivered steady operating performance with improvements in net property income improvements and good transaction momentum, it said.

 

Lee said: &ldquo We will remain disciplined and selective in our acquisitions to ensure we continue to deliver consistent and high-quality returns.&rdquo