Capitaland - Real estate globetrotters

􀂾 Story: Capitaland has been actively seeking development
projects outside of the traditional markets, shifting the focus
to increase its presence in the emerging markets.
􀂾 Point: With ventures and projects being secured in emerging
countries like 2nd/3rd tier cities in China, Russia, and GCC region
of Bahrain and Abu Dhabi, Capitaland can capitalise on its
project management experience and exploit its first-mover
advantage over the competition.
􀂾 Relevance: We expect the company will benefit from the
geographical diversification, as well as first-mover advantage.
Their long-term asset allocation objective for mature markets,
namely Australia, New Zealand and Singapore, is to gradually
reduce it to about 60% of its total assets. Maintain Buy and
target price increased marginally to S$9.60 with a 20%
premium. The upgrade is mainly due to the inclusion of new
Singapore project and increase in value for its listed entities.
Recent initiatives in Abu Dhabi, Bahrain to export expertise to the GCC
region. CapitaLand has entered into a JV with Mubadala Development
Company to build an integrated residential development in Abu Dhabi.
The 140ha site development is planned to include residential, retail,
state-of-the-art sporting, hotel and serviced apartment components to
be completed by 2011 at a cost of about US$4-5b. This project,
together with the previously announced Raffles City Bahrain, allows
Capitaland to establish a long-term strategic relationship with the local
governments to make ways for future projects in Abu Dhabi and
around the Gulf Cooperation Council region.
Tapping into Russia with local tie-ups. The group has also set up
partnerships with local associates in the emerging Russia market. In
April, they signed an agreement worth up to US$3 billion with Russia's
Eurasia Logistics Ltd. to build warehouses in key cities in Russia,
Kazakhstan, and Ukraine. CapitaLand's serviced apartment arm, The
Ascott Group, and Russia's Amtel Properties Development set up a
US$100 million fund in February 2007 to buy and develop serviced
residences in St Petersburg and Moscow. They are also interested to go
into office and residential sectors that they can provide ideas and
expertise to complement the local products and take advantage of the
oil-driven economic boom to achieve higher profit.
Maintain Buy, TP increased marginally to S$9.60. We expect the
company will benefit from the geographical diversification, as well as
first-mover advantage in 2nd/3rd tier cities in China and niche segment
such as serviced apartment sector. Their long-term asset allocation
objective for mature markets, namely Australia, New Zealand and
Singapore, is to gradually reduce it to about 60% of its total assets
from the current 66%. We have updated our RNAV with the inclusion
of the new Singapore acquisition, namely Char Yong Gardens, as well
as increase in value for the listed entities. Maintain Buy, target price
adjusted slightly to S$9.60 with a 20% premium.

Continued regional expansion to propel growth. They have formulated a growth strategy by investing in
places where there is a sizable market potential and opportunities to add value onto the real estate sectors
over existing players. With continued investment in new and emerging markets like China, Russia and the
GCC region, they aim to have the capital allocation for mature markets in Australia/ New Zealand and
Singapore lowered to the 60% from the current 66% range. They will also benefit from the first mover
advantage in certain niche segments where they have strong branding and experience, such as The Ascott
Group for the serviced apartment sector.

Expansion in China continues. Capitaland China has recently purchased a residential site in Chengdu for
RMB 1.17bn, or S$233.5m. The site at Guanghua Avenue has an area of almost 1.2m sq ft and potential
GFA of over 4.4m sq ft. A total of 3,800 homes and retail facilities will be built and is expected to
complete by 2012. This is Capitaland’s 2nd site acquisition in Chengdu, after their purchase of Raffles City
Chengdu complex late last year. This is in line with its strategy of expanding its presence in key gateway
cities in Bohai, Yangtze River Delta and Pearl River Delta and to the second- and third-tier cities in the
central and western regions of China.
First project launches in Vietnam achieved positive sales results. The company’s Hanoi residential project
achieved good sales result in its median launch. Phase 1 of 273 units in The Vista are fully booked. The
project sits on a large 23,000 sq m site, with 750 units, some retail facilities and a commercial block. The
Vista is a 28-storey development with five towers. The project has a selection of 2,3,and 4-bedroom
apartment types, with sizes ranging from 101 sq m to 472 sq m. They have achieved the price of US$1,200
to US$1,600 per sq m or S$170 to S$230 per sq ft. The site is strategically located along the Hanoi Highway
in the prime residential An Phu ward in District 2, close to the Metro Hypermarket and British International
School. The company has an indirect majority stake of 80% in the joint venture with the remaining 20%
held by local partners. With high demand for quality housing in Hanoi, we also expect the remaining
phases and the other residential project in An Phu Ward, Hanoi, to be well received by buyers.
Continue expansion in Singapore with strategic residential en-bloc purchases. Capitaland buys Char Yong
Garden for S$420m, including a S$47m development charge. It works out to S$1,788 psf per plot ratio.
Char Yong Gardens is located near to prime Orchard Road area. It sits on a 93,274 sq ft freehold site with a
gross plot ratio of 2.8. CapitaLand plans to build a luxurious 20-storey condominium with approximately
130 large-sized apartments. They are in talks with Wachovia Development Corporation, to develop the site
through a 50:50 joint venture. Previously they had purchased the adjacent Silver Tower site for S$161m or
S$1,107 psf in end September 2006. The two purchases will provide synergy with the overall lower land
cost as well as offer flexibility in concept design of the new development. The continued buoyant market
in Singapore should support the good margin when the project is to be launch by end-2008.
Largest ever bond issue in Singapore. Capitaland raised the largest ever S$1bn, 15yr bonds which are
convertible into new Capitaland ordinary shares at a conversion price of S$13.8871 per new share. The
bonds will bear a coupon rate of 2.95% p.a., payable semi annually. The bonds will mature on June 22,
2022 with a put option at the end of year 10 and year 12. This issue will potentially add 72,009,275 new
shares after full convertion, representing about 2.59% of the existing shares in issue, based on the
conversion price with no adjustments to the conversion price. Capitaland’s aim is to take advantage of the
low interest rate environment and the cheaper form of financing by tapping into the bond market for
more funding for their future expansion plans.

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