• FY22 revenue of S$2,867mn (+25% YoY) was slightly below our estimates, forming 97% of our forecast.
• RE investment revenue grew 40% YoY, driven by an occupancy recovery in the core markets, Singapore and India. Fee-related revenue was up 9% YoY, lifted by PE fund management (+26%) and lodging management (+36%) as RevPAU recovered and rose 40% YoY. Funds under management (FUM) has risen to S$88bn (FY21: S$86bn) with inflows of S$2bn in FY22, the newly launched CapitaLand China Data Centre Partners and CapitaLand China Opportunistic Partners Programme brings embedded FUM to S$96bn.
• Maintain ACCUMULATE with an unchanged SOTP TP of S$4.12. We lower FY23e earnings by 8% as we lower property fee management revenue estimates for FY23e. Our SOTP derived TP of S$4.12 represents an upside of 10.8% and a P/E of 16x. The pick-up in travel and China’s re-opening will be immediate catalysts for CLI.

The Positives

+ Fund management fee-related revenue (+5% YoY) formed 15% of revenue. PE fees (+26%) were boosted by higher transaction-related fees, which formed 43% of PE fees, while recurring PE fees fell 10% YoY. CLI’s listed funds posted +3% and -33% growth in recurring and transaction-related fees, respectively. The decline was the result of a high base in FY21, as transactions picked up after the pandemic year in 2020. Recurring fees made up 77% of FY22 fee-related revenue.

+ Lodging segment recovering steadily. Lodging management fees rose 36% on recovering operating performance as well as 9.3k/2k new units turning operational in FY22/4Q22. RevPAU grew 44% as average daily rates grew 18% and portfolio occupancy increased 10%. Recovery was seen across all CLI’s key markets, except China, with the strongest RevPAU recovery in Europe (+99%) and Singapore (+72%). The group also signed 9.3k keys in 9M22, 13% more than the number of keys signed in FY21, taking the number of keys signed to 159k. CLI is on track (~99%) to meet its 2023 target of signing 160k keys.

+ Real estate investment business (REIB) grew 40% YoY, on the back of reopening in most of CLI’s markets, except for China. Leasing activity in India has similarly picked up with Net Property Income growing 5% on the back of physical occupancy at business parks improving to ~60% from <5% in FY21. In Singapore, NPI rose 9% due to positive rental reversion across all asset classes and occupancy increasing across sectors. For the other markets, NPI increased 9% with resilient occupancy of >90% across sectors as improved NPI across Australia, South Korea, USA and UK/Europe offset a slight decrease in NPI for Germany and Japan.

The Negatives

– China retail lagging recovery. Due to China’s zero COVID-19 policy, China has only just started to re-open after the pandemic. While tenant sales in Singapore have recovered 29.4% YoY for FY22, tenant sales in China declined 15.7%. Similarly, shopper traffic in China has declined 23.6% compared to an increase of 28.6% in Singapore. Occupancy at Chinese malls has dipped to 90% (FY21: 94%), compared to the 97% retail occupancy for Singapore.

– Macro-economic and geopolitical headwinds slowing fund generation and acquisition momentum. Inflation, rising interest rates and the Russia-Ukraine conflict have resulted in higher required returns for capital investors, limiting the assets eligible to seed funds. While USD-denominated capital has taken a wait-and-see approach towards RMB investments, CLI’s RMB fund management license allows it to tap local capital. However, the lockdowns and tightened restrictions in China in FY22 have impeded business discussions and delayed planned transactions.