CapitaLand Investment (CLI) announced on its Investor Day on Nov 22 that it will accelerate its geographical diversification across Asia Pacific, Europe and the US. The company also reaffirmed its target of $200 billion in funds under management (FUM) by 2028.
On Nov 20, CLI announced it had agreed to invest $280 million in a 40% stake in SC Capital Partners Group (SCCP) and the remaining stake in phases over the next five years. When CLI’s investment in the 40% stake is completed, it will increase CLI’s FUM by $11 billion to $113 billion and mark CLI’s maiden entry into the Japanese REIT market. SC Capital’s founder and chairman, Suchad Chiaranussati, spoke at CLI’s Investor Day, which was titled “Forging Ahead”.
In addition to the FUM target, CLI aims to raise operating earnings by over two times to more than $1 billion by 2028-2030, with 60% to 70% coming from its four fee income-related businesses (FRB). In 1HFY2024, CLI reported operating patmi of $296 million, down 14% y-o-y and total patmi of $331 million, down 6% y-o-y.
The four FRBs are fees from REITs, private funds, lodging management and commercial management (formerly property management). “FRB growth is to be driven by the steady expansion of its REITs platform, accelerated private funds growth, and greater scale in lodging management and commercial management, delivered through a blend of organic expansion, new listings and funds, and mergers and acquisitions (M&A),” CLI says in a press release.
Of the $113 billion in FUM, including SC Capital’s FUM, $69 billion is in listed REITs and funds, and $44 billion is in private funds.
The land down under
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CLI is poised to expand its business in Australia, having recently announced two senior appointments to newly created roles aimed at bolstering its talent pool and driving growth in this key market. Angelo Scasserra will become CEO of CLI Australia, while Rahul Bharara has been appointed Chief In vestment Officer. They are expected to join the company in 1H2025.
CLI also said it will invest up to A$1 billion ($876.7 million) to grow FUM in Australia. In September, CLI closed its Australian Credit Programme (ACP). ACP is CLI’s maiden credit fund at A$265 million, backed by Asian investors.
On Nov 22, CLI’s group CEO Lee Chee Koon says: “For private credit, we’ve built our own team and formed a partnership with teams from Wingate in Australia, originating and underwriting deals, and there’s a lot of more pipeline we can build in Australia and Asia-Pacific.”
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On Nov 25, the Australian Financial Re view reported that CLI plans to acquire Melbourne-based investment manager and real estate financier Wingate Group, a noteworthy development.
In 2014, CapitaLand divested Australand Property Group, which was snapped up by Frasers Property (FPL) and has since been renamed Frasers Property Australia, one of FPL’s major earnings sources.
During the question-and-answer session, CLI chairman Miguel Ko says that the decision to sell Australand and invest more in China was made before his time. He added that the company “did not have a crystal ball, of course, about China’s situation today” and did not want to comment on his predecessors’ decisions. At the time, China was booming and CapitaLand had a huge competitive advantage. “That could have been a major win or a wrong move. This is not a comment on whether my predecessors made a right or wrong decision.”
Lim Ming Yan, CapitaLand’s then-president and group CEO, had stated that the divestment came amid “favourable” market conditions. Australand’s share price also performed strongly in the past few months before the divestment. “This divestment would allow us to reallocate capital to our core businesses in Singapore and China.”
CapitaLand sold its remaining 39.1% stake in Australand in March 2014 after partially divesting its stake in November 2013 to improve trading liquidity.
Double FUM to $200 billion
On Nov 22, Lee observed that the two primary factors influencing CLI were the sharp rise in interest rates and developments in China. The rapid increase in interest rates affects both operating income and valuation as capitalisation rates generally expand in line with interest rate trends.
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“When we restructured [in 2021], we were hoping China would allow us to create more private funds in the logistics and business park space and asset classes at which we were strong. What has happened made it a lot more challenging to execute that [plan]. The balance sheet we inherited from CapitaLand had benefitted from the growth in China. Because of the slowdown, there are balance sheet challenges we need to deal with,” Lee adds.
Despite the slowdown, CLI’s China for China strategy has paid dividends. “Over the last three years, we have recycled $24 billion, including $11 billion in China. Since 2021, our team in China has raised RMB50 billion ($158.4 billion). We believe there will be a lot more [to do in our] China for China [strategy].”
India is a different story. In 2019, CLI acquired Ascendas-Singbridge (ASB), which has been operating in India for more than 30 years and has brought with it a very successful Indian portfolio.
Lee says: “In the first 10 years, we lost money in India; in the next 10 years, we broke even, and in the last seven years, we have double-digit ROE from India.”
In the next few years, as China’s growth turns “tepid,” CLI will look for growth in India, Japan, Korea, Australia and Southeast Asia.
For instance, in Australia, CLI ventured into private credit. “There is a lot more private credit pipeline we can build on in Australia and Asia-Pacific. We’ve put $300 million to $400 million of loans on our book that delivered 12% to 14% [returns]. We are familiar with these properties,” Lee adds.
Shifting focus from China
JP Morgan says CLI’s biggest focus will be on growing its presence in Asia ex-China. FUM in Australia, Korea and Japan is likely to account for 25% to 35% of the total by 2028, up from 18% currently. Meanwhile, FUM from India could account for 10% to 15% by 2028. CLI could also grow its presence in the US and Europe, with FUM growth to as high as 15% of total FUM from 9% currently. In Southeast Asia, Singapore accounts for the majority of FUM, and this could moderate.
China, where CLI has been reducing its exposure, currently accounts for 27% of FUM, or $27.54 billion. This could decrease to the 10% to 20% range by 2028.
CLI’s group CFO Paul Tham says: “For CLI China, because of fair value adjustments, we saw a negative return of –8%. Without this, we would have had an ROE of 6%. China’s fair value swings will drag us down a bit, so our focus is on operating numbers.”
CLI China’s negative ROE took CLI’s 1HFY2024 ROE to below 3%. China was also blamed on the operating front. Fee income growth was slower because opportunities in China did not materialise, Tham adds.
“The US is big and deep and interesting for us. We have a team there. The big asset managers are seeing the deals and raising 80% to 90% of the capital. The mid-sized asset managers need partnerships and capital. CLI has the balance sheet and capital to take stakes in these platforms and bring Asian capital to the US,” Lee says. “I will be spending a lot more time in the US.”
The three megatrends likely to support CLI in reaching its FUM and profit targets are demographics, digitalisation and disruption.
Demographics will drive growth in lodging, living and wellness sectors. Disruption will fuel the rise of private credit, special situations, logistics and self-storage. Meanwhile, digitalisation will boost demand for data centres and renewables, CLI’s press release says.
New REITs
Andrew Lim, group COO, CLI, says that five years from now, it is potentially possible to have one REIT listed onshore each in China, India and Australia.
“A C-REIT is complementary to our China for China, RMB for RMB strategy. We have panda bonds and RMB loans, and the cost of Chinese borrowing is below SGD borrowing costs. What is missing is RMB equity. We were one of the first companies to have a discussion [in China] about REITs. The Chinese real estate market is the second largest in the world. The government wants a stable product, and I can’t think of a better prod uct than the REIT,” Lim says. “It makes per fect sense for us when conditions are right.”
India’s REITs have gained significant momentum and were particularly buoyant earlier this year. “The Indian REIT market has exploded. The fee structures don’t make sense, neither do the borrowings, and they would have to fall into line before we consider it,” says Lim. “You’ve got an emerging REIT landscape and Infrastructure Investment Trust (InvIT) framework for infrastructure assets. It gives us the ability to access another capital pool where we can match currency with assets.”
He adds that the key in Australia is internal versus external. S-REITs fall under the external manager model, while those in Australia are mainly internalised. In Singapore, the experience with internalisation has not been profitable. Minority unitholders of Sabana Industrial REIT have seen their distributions per unit fall as the cost of internalisation is currently $10 million, compared to a cost savings of $2 million to $2.5 million.
“As a product, A-REITs make a lot of sense, but you see mixed performance. There is a lot of market speculation about where Australian REITs lie. We are going to invest A$1 billion in Australia. The A-REIT is complementary but not as tangible as a C-REIT,” continues Lim.
Capital efficiency will allow CLI to self-fund its $100 billion growth in listed and private funds. $5 billion will be available for M&A and asset warehousing to launch new REITs and funds and return capital to share holders, CLI’s management says.
Growth uncertainty
JP Morgan’s comments in a report dated Nov 24 were lukewarm. “We believe the transition will take time to implement, with risk of slower growth over the few quarters, although we anticipate CLI will build the foundations to capture sustainable growth ahead,” it adds.
During the question-and-answer session, Mervin Song, an analyst at JP Morgan, says: “A big capital partner are all my clients who are here. If the profit growth isn’t fantastic, ROE is 3% to 5%, how do we get these partners here to buy your stock? A weak share price makes it much harder for you to deliver your 2028 targets. Temasek can wait forever, but my clients don’t have the luxury of time. If they wait much longer, they won’t be around to buy your shares.”
CLI’s Tham says: “Our priority is to grow the topline and earnings. Growth opportunities are the first place for capital. Then dividend. We’ve been giving 12 cents for the last five years, and that’s the base run rate.” The use of capital is growth opportunities, followed by dividends and share buybacks. “The faster we grow the top line, the faster we improve the ROE,” he adds.
