CapitaLand Investment to bank on multiple engines for growth

CAPITALAND Investment (CLI) will look at creating new products as it aims to achieve S$100 billion in funds under management (FUM) by 2024 and grow its lodging business to 160,000 units under management by 2023.

In an update on its proposed restructuring, its management said at a virtual briefing on Monday that it is confident of meeting those targets, which represent an increase from S$78 billion FUM and 123,000 units in 2020.

This growth will be driven by multiple engines - acquisition right of first refusal (ROFR) to CapitaLand Development’s pipeline of completed assets of up to S$7.6 billion, organic growth, CLI’s pipeline of real estate assets under management (AUM) of S$10.1 billion, as well as strategic acquisitions.

Touching on organic growth and acquisitions, group chief executive officer of CapitaLand Group, Lee Chee Koon, said: “Apart from deepening our own Reits, our private equity funds, we will also look at creating new products.” New Reit platforms is one aspect that CLI is keen on, to add to the existing six Reits. 

Mr Lee added: “If there are interesting asset managers that could have a strategic fit with us, that’s something we can look at."

In response to a question on whether CLI would venture into new asset classes, he pointed out that CapitaLand has already started moving into data centres. “If there are interesting opportunities where we can venture beyond the real estate side to some parts of infrastructure, we may, but the important thing is to make sure we have the right team and the capabilities in place,” he said. He also said there are plans to add headcount, especially in the fund-management space. 

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In March, the property developer announced it was planning to divide its business into a privately-held development arm, and a new, listed unit (CLI) for its fund-management and lodging-management businesses as well as its real-estate investments. With AUM of about S$115 billion, CLI is expected to be the largest real estate investment manager (REIM) in Asia, and the third-largest listed REIM company globally. 

For every one CapitaLand share held, shareholders will receive one CLI share, S$0.951 in cash as well as 0.155 unit in CapitaLand Integrated Commercial Trust (CICT). The implied value per share for CapitaLand shareholders is S$4.102.

Shares in CapitaLand rose to S$3.88 on Monday after independent financial adviser Evercore Asia (Singapore) deemed its restructuring plan “fair and reasonable” in a letter dated July 17.

The stock, among the heavily traded counters on the Singapore bourse, closed seven cents or 1.84 per cent higher, with 18.07 million shares changing hands.

According to the management, CLI’s pro forma net asset value for FY2020 works out to S$15.1 billion, of which S$1.2 billion comprises its fee income-related business and its real-estate investments, S$13.9 billion. Its FY2020 revenue and adjusted Ebitda stand at nearly S$2 billion and S$1.3 billion, respectively.

The targets of S$100 billion under FUM and 160,000 keys are reasonable and achievable, said RHB analyst Vijay Natarajan, given that the fund-management business has already been growing at a compound annual growth rate (CAGR) of 11 per cent between 2015 and last year, and the lodging arm by a CAGR of 20 per cent between 2017 and last year.

Barring unforeseen market conditions, he expects CLI will trade closer to its initially stated net asset value (NAV) of S$2.82. As at March 31,  its NAV per share stood at S$2.934.

Mr Natarajan said: “There’s definitely room for upside potential, with the platform having full-stack investment and operating capabilities.” He added that the upside depends on how well CapitaLand executes its strategy. 

“In general, comparable global REIM peers are trading at hefty premiums to their book value and higher PE multiples than CapitaLand. The market likes this kind of recurring-income business in these kinds of conditions, especially in the Asia region, to where a lot of capital is flowing.”

CLI’s fee income-related business will comprise FUM of S$78 billion and lodging assets under management of S$27.7 billion, while its real estate investments comprise its stakes in listed funds with a S$7.7 billion market value and stakes in unlisted funds with a carrying value of S$5.5 billion.

Meanwhile, CLI will have a dividend policy of at least 30 per cent of annual cash profit after tax and minority interests (PATMI), while its annual capital recycling target will stand at S$3 billion. CapitaLand’s management said that CLI will aim to deliver a sustainable double-digit return on equity. 

In a note issued ahead of Monday morning’s briefing, Citi analyst Brandon Lee said that the issuance of major documents on CLI would be a “marginally positive event, as tangible ROFR from CapitaLand Development, IFA’s valuation verdict and incremental NAV are mitigated by the entire development expertise kept within CapitaLand Development,” among other things. 

In the letter to shareholders, IFA Evercore pointed out that under the planned scheme, shareholders would effectively own a direct stake in a company with lower leverage. CLI’s pro forma net debt-to-equity ratio is 0.56 times, compared to CapitaLand’s net debt-to-equity ratio of 0.68 times as at last Dec 31. 

CapitaLand has called for an extraordinary general meeting (EGM) on Aug 10 for shareholders to vote on the planned transaction. The independent directors have recommended that shareholders approve both a capital reduction exercise and a scheme of arrangement at the upcoming EGM.

Shares of CLI is expected to be listed on or around Sept 17.

READ MORE:

• CapitaLand's restructuring plan is 'fair and reasonable: IFA
• CapitaLand's morphing into CLIM could provide a template for others
• CapitaLand's pursuit of heft and diversity is not working; it's time to separate growth from value
• CapitaLand to divest partial stakes in China projects to Ping An for 46.7b yuan; deal to yield net proceeds of over S$2b