CapitaLand Investment’s dynamic growth proposition

Until the end of last year, CLI reported its FUM, which refers to the share of total assets under CLI’s listed funds and private funds. On the other hand, AUM represents the total value of real estate managed by CLI, stated at 100% of the carrying value of each property. CLI will likely increasingly refer to FUM and FUM growth for its fee-income-related earnings (FRE).

Should CLI be compared to global asset managers such as Blackstone, BlackRock, Brookfield Asset Management and KKR? The Edge Singapore put this to group CEO Lee Chee Koon in a wide-ranging two-hour interview recently.

“Many of the global asset managers have been successful. Their origin is from the US, where capital markets and private markets have had many more years of history,” Lee says. More than that, for the past 80 years, the US has had the world’s deepest, broadest capital markets, commanding the best valuations.

See also: How to value asset management firms

“We have a very different heritage. We start from Asia, from a small market in Singapore. There are market size disadvantages,” Lee readily admits. His task is to tap into whatever advantages Asia provides, build an asset management company, first in Asia, followed by the broader Asia Pacific and then grow into bigger markets like Europe and the US.

“We hope to achieve similar success in terms of returns that we generate for investors, by building a team that is very focused on delivering high-quality, consistent earnings,” says Lee, who usually starts his day at 4am with an early morning run followed by breakfast with his kids.

Two-fold returns

See also: Is Ascott a good fit for CLI?

Asset management companies have to deliver earnings for their own investors, whether listed or not, and their capital partners, who are co-investors in their private funds. Some, such as CLI, Blackstone and Brookfield, have listed REITs. Blackstone is the sponsor of Embassy Office REIT in India and has filed to list a second REIT, Knowledge Realty Trust, along with its Indian partner Sattva Group. CLI is the sponsor with major stakes in six REITs, of which five are listed on SGX and one on Bursa Malaysia. It also owns an indirect stake in Japan Hotel REIT.

For asset managers, the figure to watch is FRE, in addition to FUM and FUM growth. In a report dated May 6 on Brookfield, JP Morgan uses a sum-of-the-parts valuation comprising a multiple for its FRE, which is usually

For CLI, JP Morgan uses a modified sum-of-the-parts valuation to suit its slightly different model. It comprises an EV/Ebitda multiple for the asset management business, an EV/Ebitda multiple for the lodging business, JP Morgan’s own fair value for CLI’s stake in its listed REITs, a $5.7 billion value for CLI’s stakes in its private funds and $3 billion for the assets on its balance sheet.

CLI has four sources of FRE. These are its listed REITs (perpetual capital), unlisted funds, commercial (property) management and lodging management.

In 1QFY2025 ended March 31, revenue from FRE rose by 3% y-o-y to $281 million. Of this, commercial management FRE rose by 4% y-o-y to $95 million, lodging management FRE rose by 2% y-o-y to $84 million, listed funds management FRE rose by 3% y-o-y to $76 million and private funds management FRE fell by 4% y-o-y to $26 million. CLI’s operating cash flow in 1QFY2025 was $255 million compared to $1 billion in FY2024.

As at March 31, the carrying value of CLI’s stake in its private equity (PE) funds was $5.3 billion, while the carrying value of its REITs was $8.2 billion. A steady-state income from its REIB is likely to be largely from distributions from its REITs and funds.

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Lee has said that by 2028, the targeted sponsor stakes in its listed REITs are in the 15% to 20% range and general partner (GP) stakes in its private funds are in the 10% to 15% range.

In a steady state, CLI should be receiving 70% of earnings from fee income (FRE) and 30% from REIB. “We want to grow the fee income. There are two components of fee income: base fees and the carry (performance fees). At CLI, we keep 50% of the carried interest in-house,” Lee says.

During CLI’s Investor Day last November, CLI’s management articulated its target of hitting $200 billion in FUM by 2028, with operating patmi of $1 billion and a double-digit return on equity. CLI has also announced a target of $500 million from lodging management FRE by 2028.

“This business is highly scaleable. For REITs, the fee income is perpetual. That’s why we want to make sure that we grow the AUM. The foundation must be, whatever we do, to deliver returns for our unitholders (of the REITs) and our limited partners (LPs). It is on that foundation that we grow our AUM and raise capital. If we can do that, people will feel very comfortable giving us additional capital because we can deliver better returns,” Lee elaborates. LPs are CLI’s capital partners in its private funds.

Is it a challenge getting hold of capital partners and LPs? Lee says with boots on the ground, the ability to access good deals with good pricing and prove you can deliver returns is the primary focus. “The ability to attract capital is secondary. Money chases good ideas,” he adds.

In 1QFY2025, CLI announced that investors in its PE funds were insurance funds (38%), sovereign wealth funds (19%), pension funds (18%), as well as senior CLI executives managing those funds, which according to Lee, gives them “skin in the game” as well. Other investors comprise high-net-worth individuals, wealth managers, banks, investment management companies, hedge funds, trust companies, endowment funds and government (14% in total), and corporations (11%).

For instance, in 2022, CLI entered into a joint venture with Dutch APG Asset Management, the investment manager of the Netherlands’ largest pension provider, to establish an Asian self-storage platform. APG and CLI committed an initial equity investment of $570 million with an option to increase their investment up to $1.14 billion, in the proportion of 90:10.

Growing FUM

Analysts have said the major deal to watch out for is CapitaSpring. CICT owns 45% of the integrated development and has a call option to acquire the remaining 55% by November 2026, after which the call option lapses. On May 2, CICT and its joint venture partners in CapitaSpring divested the serviced residence part of the development for $280 million. CICT’s share of the divestment is $126 million.

A second way to raise FUM is by acquiring a platform. In November 2024, CLI announced the acquisition of a 40% stake in SC Capital Partners Group (SCCP) for $280 million and the remaining stake in SCCP in phases over the next five years, subject to the fulfilment of conditions. SCCP holds a stake in Japan Hotel REIT. As part of the partnership, CLI will also invest a minimum of $524 million in strategic capital in SCCP’s fund strategies to support the growth of the platform. When completed, SCCP adds $11 billion to CLI’s FUM.

Last December, CLI announced the acquisition of the property and corporate credit investment management business of Wingate Group Holdings for A$200 million ($173 million) plus an earn-out. This adds Wingate’s FUM of A$2.5 billion ($2.2 billion) to CLI’s FUM. These acquisitions, coupled with new funds and the growth of the REITs’ valuations, have taken CLI’s FUM to $117 billion as at March 31, with REITs at $70 billion and private funds at $47 billion.

“Buying a management platform is about relationships. The ability to work together becomes very, very important. The intellectual property is the people,” Lee points out.

CLI’s raison d’être when looking at platforms is its strategic advantage to the group. “We need to be clear in terms of the vision, the values, how we treat people and how we look at investments. If there is a strategic advantage, we can pay a fair price,” Lee says.

In Lee’s words, Suchad Chiaranussati, chairman and founder of SC Capital, is a great entrepreneur, who is very well networked, and has great connections and a strong presence in Japan, where SC Capital manages private funds and a listed REIT.

“Immediately after the deal, Japanese partners started talking to us more and banks started to talk to us. With this platform, we have more than 100 hotels and serviced residences under management in Japan,” Lee indicates. According to him, Chiaranussati has access to a lot of international LPs, including institutional LPs from the US to the Middle East.

Wingate expands CLI’s portfolio to the world of private credit, which is less developed in Asia than in Australia. The group had made private debt deals before. For instance, in June 2021, CLI closed a HK$1.15 billion ($199 million) real estate debt fund to provide mezzanine financing backed by a residential development project in Hong Kong. In November 2021, CLI’s private debt team negotiated an early repayment for mezzanine financing and its investors achieved a net internal rate of return of over 25% because of early redemption by the borrower.

In September 2024, CLI announced the close of its Australia Credit Program (ACP) at A$265 million ($221.6 million), which was originated in partnership with Wingate. CLI had first seeded the fund, then attracted Asian investors, working with Wingate to originate and underwrite the deals.

“We did a joint venture with Wingate and sold the loans to Asian investors last year,” Lee says. He is hopeful for a double-digit return for the Asian investors.

China for China

The main reason why CLI has not been appropriately valued by the market is because of China. To recap, market watchers believed that CapitaLand took a couple of wrong turns in 2014. CapitaLand privatised its mall business, CapitaMalls Asia; divested its listed Australian entity, Australand; and doubled down on China. Australand was quickly snapped up by FPL in the same year.

Australand was a developer, owner and manager of logistics and industrial properties in Australia. When Lee was appointed group CEO of CapitaLand in 2018, one of the first steps he took was to deftly acquire Ascendas-Singbridge (ASB) because of the latter’s expertise in the development and management of logistics and industrial property.

In 2020, when the Covid-19 pandemic hit and investors focused on New Economy assets, CapitaLand was well prepared with a logistics portfolio. ASB also provided CLI with a platform in India.

In 2021, CapitaLand proposed the separation of the development business from the investment management business to remove the discount between NAV and share price and accelerate its growth in earnings. As part of the split, CapitaLand shareholders were given a CLI share valued at $2.82, 0.155 CICT units and $0.95 in cash.

As at Dec 31, 2024, CLI’s NAV was $2.72. Its latest share price is $2.53. If not for China, CLI would have traded at its NAV and higher multiples. According to media reports, 34 of the top 50 developers in China have defaulted due to the property debt crisis in China, which is why no one is expecting foreign capital to rush back.

When CapitaLand split into CapitaLand Development (CLD) and CLI, the latter’s exposure to China was around 40% of AUM. As at December 2024, China still accounted for 36% AUM and 26% of FUM. CLI’s target is for FUM from China to whittle down to the 15% to 20% range by 2028 as other geographies expand.

“We’ve had our own share of pain, but we’re healthier than others,” Lee says. “When we decided to restructure in 2021, we envisaged we could raise many funds for our China business because of our track record in China. But China slowed down,” he acknowledges.

Nonetheless, CLI quickly pivoted to a China-for-China strategy, raising RMB50 billion ($8.9 billion) for its FUM in China from insurance capital and various domestic institutions.

On May 21, CLI announced its first onshore master fund in China, CLI RMB Master Fund, with a total equity commitment of RMB5 billion. CLI has secured a major domestic insurance company to take up a majority stake in the master fund.

Eventually, the master fund is expected to contribute RMB20 billion or $3.7 billion to CLI’s FUM when fully deployed, taking FUM to more than $120 billion. The master fund will invest in a series of sub-funds that will seek to acquire high-quality, income-producing assets with long-term growth potential. The sub-funds will invest in business parks, retail, rental housing and serviced residences across Tier 1 and top Tier 2 cities. Future sub-funds may also invest in special opportunities in other sectors such as data centres, logistics parks and offices.

Puah Tze Shyang, CEO of CLI China, says: “With this new fund, we have successfully raised RMB54 billion across seven RMB funds since 2021, demonstrating the strong momentum of our domestic-for-domestic fund strategy to grow FUM and recurring fee income.”

Says Lee: “We continue to receive a lot of requests from big insurance funds. We’ve been in China for more than 30 years. Recently, there has been consolidation. A lot of foreign players are slowing down. Some are exiting and that leaves very few credible players with a sound reputation.”

Gerry Chan, CEO of CLCT’s manager, said the IPO is likely to be listed by the end of this year. “China’s domestic capital market and investor base are largely untapped by global REIT players,” he adds.

Increasingly, market players reckon that China’s real estate sector may have bottomed. When asked about the outlook on Chinese real estate during a media briefing on May 16, Helen Wong, group CEO of Oversea-Chinese Banking Corp, said: “We feel more positive. I wouldn’t say the whole issue will be resolved, but we have reached the bottom and have some positivity for the market to turn up. It won’t be a V-shaped, but I feel we have passed the worst.”

Contemplating an India-listed vehicle

“We are contemplating a listed vehicle in India in the long term because the market is so big. We want to make sure that we have sufficient capital to realise the full potential of the India business,” Lee says. “We definitely need to study this, but we do not want to do anything that will put CLINT at a disadvantage.”

Additionally, Lee adds that CLI is looking to set up new private funds in India. In November last year, CLI announced that it had secured $261 million in capital commitments from Mitsui OSK Lines (MOL) for its Southeast Asia and India funds. CLI has closed its $525 million CapitaLand India Growth Fund 2 (CIGF2) with $131 million capital commitment from Daibiru Corporation, the real estate subsidiary of MOL, taking CIGF2’s FUM to more than $1 billion.

“We have raised two funds and are now in the process of raising a core fund and another development fund for the logistics business. We’re also looking to set up a private fund for our India data centre business,” Lee says.

CLINT has four data centres under development in Mumbai, Bangalore, Hyderabad and Chennai.

Undervalued real asset manager

CLI’s expertise in India and China appears to be underappreciated, along with its commitment to paying 12 cents in dividends. JP Morgan is expecting the market to trim its consensus forecasts. This is because 1QFY2025 revenue fell 24% y-o-y to $496 million, largely due to the deconsolidation of CLAS, the sale of 16 of its US multifamily assets and Ascendas iHub Suzhou. “Fee income continues to be on an upward trajectory, rising 3% y-o-y to $281 million,” JP Morgan notes.

In a May 2 report, OCBC Investment Research trimmed CLI’s price target to $3.67 from $3.71 because it expects deal-making to slow. “Management remains on the lookout for potential platforms and asset acquisitions, but we expect a more measured approach in light of the ongoing macroeconomic uncertainties,” OCBC says.

Interestingly, CLI has other levers, such as potentially listing The Ascott (see sidebar above). Potential acquisition of a platform that owns and manages undervalued assets in Singapore could be an additional opportunity. CLI is also part of an enviable ecosystem. “As the investment management arm of CapitaLand Group, CLI has access to the development capabilities of and pipeline investment opportunities from CapitaLand Group’s development arm,” OCBC says.

JP Morgan has maintained its “overweight” rating and an unchanged price target of $3.35. CLI’s shareholders, including its top management, will be hoping that this target is met.