Capitaland Investment

I don't know how Capitaland classify them but I do know many property company regards developing properties, whether for sales or hold is less not more capital intensive than investment properties. The return period is shorter for development, how much you earn(rate) is another issue. ie Investment property with cap rate of say 5% need 20 years while from bid to fully built/sold need say 5 years.

Depend on accounting policy for each properties, majority might be at cost while other with profit and lesser at valuation, selling at below NTA can be very different. At the extreme, think about selling at below NTA where property is valued at market price against selling at below NTA where property is valued at cost of construction.

Those at cost will receive a nice pop when say a shopping mall is completed and sell/value at market value --- development profit. This is what those management (include Capitaland) that keep saying about how many years to stablise and yield on cost, etc etc. These will be gone.

The remaining are so called fund management but this fund management come with heavily invested mainly REITs and investment property. Doesn't matter how Capitaland market it, you won't even see number that look like fund management from Capitaland financials. Capitaland just can't split out the fund management and property investment. And I believe there is one number to watch which will be higher ROE compare to peers over time.

(25-03-2021, 02:14 PM)donmihaihai Wrote: The remaining are so called fund management but this fund management come with heavily invested mainly REITs and investment property. Doesn't matter how Capitaland market it, you won't even see number that look like fund management from Capitaland financials. Capitaland just can't split out the fund management and property investment. And I believe there is one number to watch which will be higher ROE compare to peers over time.

To me, this is the part that matters out of the transaction. At a glance, it would seem that the effort to reduce the capital intensity of the entire group is proceeding slower than planned and Temasek decided that owning the development arm will result in better ROI, especially with downstream vehicles under their control to acquire the developed properties.

That being said, the investment property portfolio is worth approximately $10.1 billion with a recycling target of $3 billion a year. That would approximate a holding period of 3 years. Assuming a yield of 3% a year while holding and a 11% premium achieved, it produces an IRR of 6.4%. Similarly, the co-investments its managed funds are decent yielding assets, have appreciation potential and combined with the fee generation, it is likely that CLIM will generate a ROE above its cost of equity.

Whether it is an attractive investment will then depend on whether it can reduce the balance sheet size required to support its growth.

(25-03-2021, 03:18 PM)Clement Wrote:

(25-03-2021, 02:14 PM)donmihaihai Wrote: The remaining are so called fund management but this fund management come with heavily invested mainly REITs and investment property. Doesn't matter how Capitaland market it, you won't even see number that look like fund management from Capitaland financials. Capitaland just can't split out the fund management and property investment. And I believe there is one number to watch which will be higher ROE compare to peers over time.

That being said, the investment property portfolio is worth approximately $10.1 billion with a recycling target of $3 billion a year. That would approximate a holding period of 3 years. Assuming a yield of 3% a year while holding and a 11% premium achieved, it produces an IRR of 6.4%. Similarly, the co-investments its managed funds are decent yielding assets, have appreciation potential and combined with the fee generation, it is likely that CLIM will generate a ROE above its cost of equity.

Whether it is an attractive investment will then depend on whether it can reduce the balance sheet size required to support its growth.

The ugliest thing about CLIM is they would have control over the 6 REITs of Capitaland (CICT, A-REIT, AI-REIT, ART, CLCT and CMMT) and therefore the investment property balance on the balance sheet will be roughly the same size as Capitaland previously. Therefore CLIM is unlikely to have a beautiful ROE expected of a pure real estate fund manager.

(26-03-2021, 11:04 AM)r0n Wrote:

(25-03-2021, 03:18 PM)Clement Wrote:

(25-03-2021, 02:14 PM)donmihaihai Wrote: The remaining are so called fund management but this fund management come with heavily invested mainly REITs and investment property. Doesn't matter how Capitaland market it, you won't even see number that look like fund management from Capitaland financials. Capitaland just can't split out the fund management and property investment. And I believe there is one number to watch which will be higher ROE compare to peers over time.

That being said, the investment property portfolio is worth approximately $10.1 billion with a recycling target of $3 billion a year. That would approximate a holding period of 3 years. Assuming a yield of 3% a year while holding and a 11% premium achieved, it produces an IRR of 6.4%. Similarly, the co-investments its managed funds are decent yielding assets, have appreciation potential and combined with the fee generation, it is likely that CLIM will generate a ROE above its cost of equity.

Whether it is an attractive investment will then depend on whether it can reduce the balance sheet size required to support its growth.

The ugliest thing about CLIM is they would have control over the 6 REITs of Capitaland (CICT, A-REIT, AI-REIT, ART, CLCT and CMMT) and therefore the investment property balance on the balance sheet will be roughly the same size as Capitaland previously. Therefore CLIM is unlikely to have a beautiful ROE expected of a pure real estate fund manager.

I think everyone agrees with this statement, which is why the longer term plan is to deconsolidate the REIT holdings on its balance sheet. Whether the deal is an acknowledgement that it is harder than expected is anyone's guess.

I don't think anyone expects CLIM to trade at large multiples to book value, at least as it currently is structured, after the transaction is complete. However, can it trade at around 1x P/B? Based on the expected ROE vs cost of equity, I would think so.

(26-03-2021, 11:24 AM)Clement Wrote:

(26-03-2021, 11:04 AM)r0n Wrote: The ugliest thing about CLIM is they would have control over the 6 REITs of Capitaland (CICT, A-REIT, AI-REIT, ART, CLCT and CMMT) and therefore the investment property balance on the balance sheet will be roughly the same size as Capitaland previously. Therefore CLIM is unlikely to have a beautiful ROE expected of a pure real estate fund manager.

I think everyone agrees with this statement, which is why the longer term plan is to deconsolidate the REIT holdings on its balance sheet. Whether the deal is an acknowledgement that it is harder than expected is anyone's guess.

I don't think anyone expects CLIM to trade at large multiples to book value, at least as it currently is structured, after the transaction is complete. However, can it trade at around 1x P/B? Based on the expected ROE vs cost of equity, I would think so.

The deconsolidation of the REITs on the balance sheet will not happen as long as they still own the REIT manager.

(26-03-2021, 12:19 PM)r0n Wrote:

(26-03-2021, 11:24 AM)Clement Wrote:

(26-03-2021, 11:04 AM)r0n Wrote: The ugliest thing about CLIM is they would have control over the 6 REITs of Capitaland (CICT, A-REIT, AI-REIT, ART, CLCT and CMMT) and therefore the investment property balance on the balance sheet will be roughly the same size as Capitaland previously. Therefore CLIM is unlikely to have a beautiful ROE expected of a pure real estate fund manager.

I think everyone agrees with this statement, which is why the longer term plan is to deconsolidate the REIT holdings on its balance sheet. Whether the deal is an acknowledgement that it is harder than expected is anyone's guess.

I don't think anyone expects CLIM to trade at large multiples to book value, at least as it currently is structured, after the transaction is complete. However, can it trade at around 1x P/B? Based on the expected ROE vs cost of equity, I would think so.

The deconsolidation of the REITs on the balance sheet will not happen as long as they still own the REIT manager.

I am pretty sure they can apply the investment entity exemption under SFRS(I)10, which comes into effect this year, which is why i am analysing them on a deconsolidated basis.

Paragraph 27 states that:
A parent shall determine whether it is an investment entity. An investment entity is an entity that: 
(a) obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services; 
(b) commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and 
© measures and evaluates the performance of substantially all of its investments on a fair value basis. Paragraphs B85A–B85M provide related application guidance

Paragraph 31 which follows:
Except as described in paragraph 32, an investment entity shall not consolidate its subsidiaries or apply SFRS(I) 3 when it obtains control of another entity. Instead, an investment entity shall measure an investment in a subsidiary at fair value through profit or loss in accordance with SFRS(I) 9.1.

(26-03-2021, 12:47 PM)Clement Wrote:

(26-03-2021, 12:19 PM)r0n Wrote:

(26-03-2021, 11:24 AM)Clement Wrote:

(26-03-2021, 11:04 AM)r0n Wrote: The ugliest thing about CLIM is they would have control over the 6 REITs of Capitaland (CICT, A-REIT, AI-REIT, ART, CLCT and CMMT) and therefore the investment property balance on the balance sheet will be roughly the same size as Capitaland previously. Therefore CLIM is unlikely to have a beautiful ROE expected of a pure real estate fund manager.

I think everyone agrees with this statement, which is why the longer term plan is to deconsolidate the REIT holdings on its balance sheet. Whether the deal is an acknowledgement that it is harder than expected is anyone's guess.

I don't think anyone expects CLIM to trade at large multiples to book value, at least as it currently is structured, after the transaction is complete. However, can it trade at around 1x P/B? Based on the expected ROE vs cost of equity, I would think so.

The deconsolidation of the REITs on the balance sheet will not happen as long as they still own the REIT manager.

I am pretty sure they can apply the investment entity exemption under SFRS(I)10, which comes into effect this year, which is why i am analysing them on a deconsolidated basis.

Paragraph 27 states that:
A parent shall determine whether it is an investment entity. An investment entity is an entity that: 
(a) obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services; 
(b) commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and 
© measures and evaluates the performance of substantially all of its investments on a fair value basis. Paragraphs B85A–B85M provide related application guidance

Paragraph 31 which follows:
Except as described in paragraph 32, an investment entity shall not consolidate its subsidiaries or apply SFRS(I) 3 when it obtains control of another entity. Instead, an investment entity shall measure an investment in a subsidiary at fair value through profit or loss in accordance with SFRS(I) 9.1.

All these are just accounting treatments though. Whether is it consolidated/equity method/fair value/amortized cost, those are just accounting treatment that do not affect the true economics of the business. My company is materially the same regardless if it owns 51% of a company (subsidiary, deemed to have control, so consolidated) or 49% of the same company (equity method).

Having said that, the layman investor may just look at the headline ROE without doing the necessary see-through adjustments and thinking. So I guess the exemption will help for marketing/optics.

For investor who invest for long term, how these are being accounted for doesn’t matter because the end results will be the same. But not many are long term, most just need to do a flip.

For the management, long term investor need management who think long term. And in my opinion, best in class marketer certainly a good match for flippers.

Would keeping the assets and liabilities of the REITs on its consolidated balance sheet present a more accurate picture of CLIM's economic performance? CLIM's business model is not really to invest in property, it is to provide investment management services to funds which invest in varying real estate assets around the world. While it does co-invest in the funds it manages, the company will generally prefer to invest as little as possible as investment managers are appraised on their distributable earnings. I would argue that the deconsolidation, if pursued, does provide a more accurate view of the performance of the business.

Regarding the marketing aspects, wouldn't it be an asset for an investment management company to have "best in class" marketing capabilities for investment products? It's shares form part of its offerings in the market, together with its other investment products. I would argue the opposite, that management of companies which are deeply undervalued due to their failure to engage with the market effectively, are doing their shareholders a disservice.

(26-03-2021, 04:20 PM)Clement Wrote: Would keeping the assets and liabilities of the REITs on its consolidated balance sheet present a more accurate picture of CLIM's economic performance? CLIM's business model is not really to invest in property, it is to provide investment management services to funds which invest in varying real estate assets around the world. While it does co-invest in the funds it manages, the company will generally prefer to invest as little as possible as investment managers are appraised on their distributable earnings. I would argue that the deconsolidation, if pursued, does provide a more accurate view of the performance of the business.

Regarding the marketing aspects, wouldn't it be an asset for an investment management company to have "best in class" marketing capabilities for investment products? It's shares form part of its offerings in the market, together with its other investment products. I would argue the opposite, that management of companies which are deeply undervalued due to their failure to engage with the market effectively, are doing their shareholders a disservice.

Most reports have put it that CapLand privatise the property development business. Won't it be more appropriate to say that it is Temasek Holding that privatise CapLand?