Capitaland - Capitalising on regional ties for growth

􀂾 Story: A capacity-filled crowd attended our Pulse of Asia
Conference luncheon as Capitaland’s management shared its vision
and strategy for the company.
􀂾 Point: The audience was very interested in its strategy on capital
recycling as well as tie-ups with prominent local partners to expand its
presence in emerging markets such as the Middle East, India and
China.
􀂾 Relevance: We believe Capitaland’s continued deployment of the
capital recycling strategy and partnerships are ideal models to grow their
businesses. We maintain our Buy rating with a target price of S$9.70 with
a 20% premium to RNAV justified by its strong branding and income
streams that will benefit from the current and future boom for both real
estate and financial markets in the region.
Strategic tie-up with Chinese developer. Capitaland, via its subisidiary
CapitaLand Retail, and Vanke intends to collaborate on a non-exclusive basis,
to develop the commercial sections of Vanke’s completed projects, those in
progress and future ones. Vanke, one of the largest property developer in
China, specialises in residential township development. They have 24.9m sq m
under their portfolio in FY06, and potentially adding another 10m sq m in
2007 in Wuhan, Nanchang, Shenyang, Shenzhen, Nanjing, Chengdu and
Shanghai. Similar to their previous tie-ups with strong local partners in India
and Abu Dhabi, Capitaland can leverage on Vanke’s network of residential
projects and penetrate their retail management business into other untapped
markets.
Singapore remains key. Capitaland’s recent acquisitions in Farrer Court and
Char Yong Garden reaffirms its continued commitment locally. Management
strongly believes that Singapore has all the necessary ingredients to become a
key global city in Asia. The increased influx of foreign capital, as well as its
renowned social and physical infrastructure should benefit the local property
market in the long run. Currently, they have about 5.5m sq ft of land bank
under their management. They are scheduled to launch two more high-end
projects, namely the 100-unit Silver Tower site and 150-unit Dragon View site,
before the end of the year.
Maintain Buy, Target price S$9.70. Capitaland should continue to benefit from
its capital recycling model, as well as first-mover advantage venturing into oilrich
countries and emerging markets in the Middle East, Russia and China.
Partnering dominant players such as Vanke in China, Pantaloon in India, Lippo
Group, Sun Hung Kai Properties in Singapore, eSun in Macao and Mubadala in
Abu Dhabi, should help to strengthen their chances of success. We maintain
buy with target price of S$9.70 with a 20% premium to RNAV.

ION Orchard – the new shopping experience in Orchard Road. The CAPL/ SHKP JV has renamed
its retail component of the Orchard Turn project as ION Orchard. This portion of the
development consists of a retail section with over 660,000 GFA of NLA (ION Orchard), a 33,000
sq ft ION square outdoor space area, ION Sky, a double-storey observation deck located on the
55th and 56th floors called ION Sky, a 5,300 sq ft ION Art in the 4th floor dedicated to art. The
mall will have 400 retail, F&B and entertainment stores spread over eight floors of retail space,
with Orchard MRT station to be connected in the B2 level. The highest rental area will be on the
Basement 1 and ground level which will have prominent street frontage as well as high
pedestrian traffic. On top of the mall and the car park space (5th to 8th levels) will be the 175-
unit The Orchard Residences.
About 60% of the shops in the mall will be international brands that are entering the Singapore
retail scene for the first time. The indicative average gross rental for the mall is about S$20 per
sq ft per month with the prime areas to fetch as high as over S$60 per sq ft per month. Being
located in the last prominent site in the Orchard Road/Paterson Road junction, its prime
location, iconic design and being the tallest building in the area, ION Orchard will be the new
landmark in the rejuvenated Orchard Road area when the mall is opened by Christmas 2008.
Potentially, CAPL’s 50% share in income for the ION Orchard can value at S$4.8m for the one
month in 2008 and about S$60m for FY09
Continued growth in AUM business. Captitaland’s non-listed fund management has been
growing steadily for the past few years. They have successfully developed a solid foundation in
private fund management business. Currently, they are managing five REITS, one Property Trust
and 12 private real estate funds. A total of S$14.3b in assets is under their management as of
1Q07. Their target is to have S$18bn by FY07. We are confident that the target will be reached
without any difficulties.