Towards the end of CapitaLand Investment’s (CLI) results briefing which started at 8.30am on Aug 11, Grace Chen, head of investor relations, remarked that its share price was down 7%. In afternoon trading, CLI’s share price recovered, ending Aug 11 down 4.39% on the previous session’s close.
For context, CLI’s business model has changed. It is no longer the old CapitaLand which announced results in August 2021. The residential development and asset heavy part of the business has been privatised. In addition, on June 28, 2021, CapitaLand had announced the partial divestment of the Raffles City developments in China to Ping An for the equivalent of $9.6 billion, with net proceeds of $2 billion, completed in 3Q2021. Hence, FY2022’s figures are not likely to compare favourably with the gains made in FY2021.
In 1HFY2022 ended June, operating metrics were actually better. Gross revenue rose 29% y-o-y to $1.354 billion, and operating Patmi (profit after tax and minority interest) rose 31% y-o-y to $346 million. CLI reported higher fee management performance fees from funds in Vietnam and Singapore, and high lodging management fees as revenue per available unit and occupancy of managed lodging properties improved.
Ebitda, however, fell by 32% to $873 million and Patmi declined 38% to $433 million. This is because of the absence of revaluation gains and actual realised portfolio gains. In 1HFY2022, fee income related business (FRB) operating contributed 26% to Ebitda; real estate investment business (REIB) operating contributed 59% and non-operating contributed 15% to Ebitda.
Geographically, 80% of Ebitda was from developed markets in 1H2022, with China contributing just 12%. Asset classes were balanced with 31% from retail, 27% from office, 22% from lodging and 20% from New Economy.
China headwinds
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Group CFO Andrew Lim says that CLI will meet its $3 billion recycling target for the year, but this is a lot less than the amount recycled in 2021, which included the Raffles City portfolio in China. On new funds, the sentiment to investing in mainland China funds — the old CapitaLand’s forte — appeared to be lukewarm from developed market investors.
On the other hand, in June this year, CLI established its first onshore RMB fund in China, in partnership with a domestic asset management company. CLI holds a 12% stake in the RMB700 million ($144 million) fund. “We are looking to tap the insurance companies which is the largest source of capital, and asset management companies backed by banks and SOEs, and SOEs which are endowed with sufficient liquidity,” says Puah Tze Shyang, CEO, CLI China, on the potential to launch more onshore funds with onshore capital.
CLI’s China business is facing headwinds, but these should abate as the Chinese economy reopens from the various Covid lockdowns. “Our numbers could have been better if not for two reasons. One is Covid-Zero in Shanghai and the rebates we need to provide to help tenants in shopping malls, but those are one-off with the economy opening up with the Chinese government taking an enlightened approach around Covid. The other reason is capital recycling,” says Lee Chee Koon, group CEO of CLI. He adds that the company will focus on more fund strategies and off-market deals, with CLI onboarding a capital-raising team.
“We are entering into a very volatile environment. Things are very uncertain and many of the major firms are predicting we are going into recession. Cost of capital has gone up and we have to be very careful when we look for deals. We will be very careful the way we pursue growth,” Lee cautions.
