Capitaland Investment

[ongweehiang]

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.

Isn't it right that for an investment management company whose investment is in REITs, the way to accurately assess the economic accruing to the company is through the dividend received and the market value of the REITs.

Instead of saying that it is optics, shouldn't SFRS(I) 9.1 should provide a more accurate view on the company?

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[donmihaihai]

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.

Actually it doesn't matter whether REITs/ private funds are consolidated or as financial assets, the weight of these $13B(taken from presentation) will be weighting on the resources and return as well, same for $10B investment properties. What will be the weight of fund management, 5% of 114B = $6B maybe but I don’t know but the number say each portion is heavy.
 
In long term, I hardly find a company that is doing well and doesn’t reflect in their share price and the reverse is also true. Ben Paul article from BT say it quite nicely about Capitaland but I would say look back longer, say 20 years. Current CEO is doing his 2nd corporate actions. For better or worse. First paying a premium to buy businesses from majority shareholder and 2nd selling a segment to majority shareholder at a discount.

[Clement]

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.

Actually it doesn't matter whether REITs/ private funds are consolidated or as financial assets, the weight of these $13B(taken from presentation) will be weighting on the resources and return as well, same for $10B investment properties. What will be the weight of fund management, 5% of 114B = $6B maybe but I don’t know but the number say each portion is heavy.
 
In long term, I hardly find a company that is doing well and doesn’t reflect in their share price and the reverse is also true. Ben Paul article from BT say it quite nicely about Capitaland but I would say look back longer, say 20 years. Current CEO is doing his 2nd corporate actions. For better or worse. First paying a premium to buy businesses from majority shareholder and 2nd selling a segment to majority shareholder at a discount.

I think the return on equity of CLIM is not exactly awful when we look at it on a non-consolidated basis. 

Lets examine the visible cash flow streams:

1) Assume a 5% yield on its $13.3 billion of co-investment holdings so $665,000,000.

2) A 6.4% IRR on its $10.1 billion investment property portfolio ~ $640,000,000. (might be lumpy as part of the IRR is based on recycling at the historical premium.)

3) Fees related earnings of ~$283 million. (Based on 56% EBITDA on expected management fees)

Now, there are other factors which will reduce the actual FCFE such as taxes, interest on borrowings etc, but for a net asset value of $14.7 billion (which i suspect is on calculated on a consolidated basis so might not be exactly apples to apples), that is not too terrible at all.

[donmihaihai]

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.

Actually it doesn't matter whether REITs/ private funds are consolidated or as financial assets, the weight of these $13B(taken from presentation) will be weighting on the resources and return as well, same for $10B investment properties. What will be the weight of fund management, 5% of 114B = $6B maybe but I don’t know but the number say each portion is heavy.
 
In long term, I hardly find a company that is doing well and doesn’t reflect in their share price and the reverse is also true. Ben Paul article from BT say it quite nicely about Capitaland but I would say look back longer, say 20 years. Current CEO is doing his 2nd corporate actions. For better or worse. First paying a premium to buy businesses from majority shareholder and 2nd selling a segment to majority shareholder at a discount.

I think the return on equity of CLIM is not exactly awful when we look at it on a non-consolidated basis. 

Lets examine the visible cash flow streams:

1) Assume a 5% yield on its $13.3 billion of co-investment holdings so $665,000,000.

2) A 6.4% IRR on its $10.1 billion investment property portfolio ~ $640,000,000. (might be lumpy as part of the IRR is based on recycling at the historical premium.)

3) Fees related earnings of ~$283 million. (Based on 56% EBITDA on expected management fees)

Now, there are other factors which will reduce the actual FCFE such as taxes, interest on borrowings etc, but for a net asset value of $14.7 billion (which i suspect is on calculated on a consolidated basis so might not be exactly apples to apples), that is not too terrible at all.

Actually very decent return if your expectation is met and a different animal compare to the past.

[doremifatso]

Current prices are effectively valuing the fund management business for free. CLIM should trade at least slightly above 1x book value (https://wandering-elephant.com/2021/03/2...nt-prices/)

But I agree that the 13.3b stakes in its REITs & Funds and the 10.1b of investment properties are too large relative to the fund management business. If they want to be valued as a fund manager, then they should not let their income from fund management be eclipsed by income from investments in property. I can understand that they need to have a stake in the REITs for purposes of having some alignment with shareholders. But the 10.1b of investment properties is a bit too big. They need to sell them off into existing or new REITs/ Funds soon.

[weijian]

Probably for a new REIT in time to come?

CapitaLand acquires its first hyperscale data centre campus in China for RMB3.66 billion

CapitaLand is investing RMB3.66 billion (approximately S$757.7million1) to acquire its first hyperscale data centre campus in China, the world’s second largest data centre market and the largest in Asia Pacific2. The acquisition is via the purchase of 100% equity interest in two companies registered in China

https://links.sgx.com/FileOpen/NR_Capita...eID=663259

[Reenat]

Probably for a new REIT in time to come?

CapitaLand acquires its first hyperscale data centre campus in China for RMB3.66 billion

CapitaLand is investing RMB3.66 billion (approximately S$757.7million1) to acquire its first hyperscale data centre campus in China, the world’s second largest data centre market and the largest in Asia Pacific2. The acquisition is via the purchase of 100% equity interest in two companies registered in China

https://links.sgx.com/FileOpen/NR_Capita...eID=663259

Probably, with a total of SGD 2.5b in data center assets with this new acquisition.  However, I think this will be parked first under CLIM during the restructuring exercise. The REIT will come post restructuring....

[r0n]

Probably for a new REIT in time to come?

CapitaLand acquires its first hyperscale data centre campus in China for RMB3.66 billion

CapitaLand is investing RMB3.66 billion (approximately S$757.7million1) to acquire its first hyperscale data centre campus in China, the world’s second largest data centre market and the largest in Asia Pacific2. The acquisition is via the purchase of 100% equity interest in two companies registered in China

https://links.sgx.com/FileOpen/NR_Capita...eID=663259

Probably, with a total of SGD 2.5b in data center assets with this new acquisition.  However, I think this will be parked first under CLIM during the restructuring exercise. The REIT will come post restructuring....

Most of the SGD 2.5b in data centre assets are already in Ascendas REIT. Just one in Singapore (Kim Chuan), the China acquisition and the Korean development are in Capitaland's books. I presume CLIM will take the Singapore and China ones and the privatised entity will take the Korean development.

[weijian]

A pretty informative 50min Q&A session for OPMIs on the restructuring, although I suspect most Capitaland insiders may think 50mins isn't value for time spent (for a Capitaland outsider like me, it was worth it though).

I also thought the star was David Gerald with his comments "Have you been sleeping well?" (15.00min mark) and "it sounds like CLIM is going to be very exciting!" (40:30min mark)

KOPI with CapitaLand: a CapitaLand-SIAS Virtual Dialogue Session

CFO reminds of the cyclical nature of real estate and how important to continue to look at unloved asset classes and pick up good value.

Why it is disposing CICT as capital reduction, not ART.

Fund management will still be a minority contributor of profits from Day 1...but it is the start of a new journey?

Becoming the leading asset manager in Asia, in the next 3 to 5 years..

https://www.youtube.com/watch?v=BQ7_Hn1REJ8

[¯|_(ツ)_/¯]

Capitaland@374 2318@77.85

In June 2021, CapitaLand registered as a private equity fund manager in China, in order to conduct RMB-denominated fund raising and provide fund management (FM) services in China.
The direct access to onshore RBM funding is expected to open up more capital partnership opportunities with domestic institutional investors.

Divestment of partial stakes in 6 Raffles City in China to new long-term Chinese onshore strategic partner
Ping An for RMB46.7bn (S$9.6bn), at a 6.7% premium to valuation:
a. 70% onshore stake in Beijing, Chengdu, Nigbo, Hangzhou and Changning;
b. 60% onshore stake in Shanghai

Capitaland retains 12.6% to 30% stake and will remain as the asset manager, earning FRE.
Capitaland FY2021 S$3b capital recycling target met - S$2b of net proceeds to be unlocked.

https://links.sgx.com/FileOpen/20210628_...eID=672547







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