CapitaLand Investment Reports 3% Dip in Revenue, but Lodging Business Shines
Singaporean real estate investment manager CapitaLand Investment (CLI) recently released an update on its financial performance for the nine months ending in September. While the company experienced a 3% year-on-year decline in revenue, its fee-earning business showed growth, partially offsetting the decline in its real estate investment business.
Fee Revenue Boost
CLI’s fee revenue, which comes from managing listed and private funds, as well as its lodging and commercial property businesses, saw a significant jump of 9% year-on-year to S$799 million during the period. The lodging vertical, in particular, experienced a remarkable surge of 31%.
According to CLI’s Chief Financial Officer, Paul Tham, the lodging business has been performing exceptionally well, exceeding expectations and surpassing its targets. The higher revenue per available unit (revPAU) has been a key driver of growth, with rates increasing across all markets. Tham expects this upward trend to continue.
The fee business accounted for 36% of CLI’s total revenue for the period and is a priority for the company as it pursues an asset-light growth strategy. On the other hand, real estate investment revenue declined by 8% to S$1.4 billion in the first nine months of 2023 compared to the previous year.
Hot Hospitality
The lodging vertical’s strong performance has positioned it as the largest contributor to CLI’s fee business, accounting for 31% of the segment’s revenue mix during the period. CLI aims to achieve S$500 million in fee income for the lodging segment in 2028, double the S$249 million recorded in the first nine months of this year.
CLI’s revenue per available unit (revPAU) experienced a 25% year-on-year increase, driven by a 9% rise in occupancy and an 8% increase in average daily rate across its lodging business. The company achieved revPAU growth in all regions, with North Asia leading the way with a 110% surge, driven by Japan. Singapore and Europe also performed well, reaching 130% and 117% of pre-pandemic levels, respectively.
To further expand its lodging business, CLI plans to open new properties and pursue acquisitions. The company currently has a development pipeline of approximately 66,000 units across a couple hundred assets. Additionally, CLI aims to engage in more mergers and acquisitions in the sector, building on its Oakwood acquisition in July 2022.
China Drag
The decline in CLI’s real estate investment earnings can be attributed to currency depreciation in China, as well as ongoing pressure on retail rents and net property income due to softer economic activity. The segment, which accounted for 64% of the company’s revenue during the period, also suffered from asset disposals in the previous year and revaluation of properties, resulting in a 6% year-on-year decline in CLI’s portfolio to S$34.3 billion.
Tham highlighted the challenge posed by the depreciation of the renminbi (RMB) against the Singapore dollar, which has had a significant impact on CLI’s revenue numbers. The RMB has depreciated by almost 10% year-on-year, affecting CLI’s revenue top line, particularly in Singapore currency denominated reporting.
Recycling and Rebalancing
In addition to boosting fee income, CapitaLand Investment plans to optimize and rebalance its asset mix through continued asset sales and capital recycling. The company has divested assets worth S$1.2 billion year-to-date, with 63% transferred to fund vehicles and the remainder divested externally. CLI currently has 50 assets worth approximately S$10 billion in its divestment pipeline.
Some of CLI’s divestments this year include the Courtyard by Marriott Sydney-North Ryde and Novotel Sydney Paramatta for S$95.6 million, as well as four Citadines properties in France for S$64.7 million.
The company intends to use the capital from divestitures and fundraising to diversify geographically beyond Singapore and China, explore new asset classes, and pursue higher yielding strategies such as value-add and special situations. Tham emphasized the importance of having optionality and other growth avenues, highlighting self-storage, healthcare and wellness, and credit as key areas of focus for future growth.
CLI recently announced the establishment of a S$350 million fund with Thai developer Pruksa Holding to invest in wellness and healthcare-related assets in Southeast Asia.
As of September, CLI’s net debt to equity ratio stood at 0.55x, and its interest coverage ratio was 3.7x. The company had an average debt maturity of 2.9 years and an implied interest cost of 3.9%, up from 3.1% in 2022.
CLI’s stock price closed down 0.3% for the day, while the Straits Times Index recorded a 0.2% gain.
Conclusion
In conclusion, CapitaLand Investment (CLI) has reported a 3% dip in revenue for the nine months ending in September. However, the company’s fee-earning business, particularly its lodging vertical, has shown significant growth, partially offsetting the decline in its real estate investment business. CLI’s fee revenue, driven by managing listed and private funds, as well as its lodging and commercial property businesses, saw a notable increase of 9% year-on-year. The lodging business has been the standout performer, exceeding expectations and contributing to 31% of CLI’s fee business revenue. With higher revenue per available unit (revPAU) and increasing rates across all markets, CLI expects this positive trend to continue. On the other hand, CLI’s real estate investment revenue declined by 8% due to currency depreciation in China and ongoing pressure on retail rents. To address these challenges and optimize its asset mix, CLI plans to continue divesting assets and pursuing capital recycling. The company aims to diversify geographically, explore new asset classes, and focus on higher yielding strategies for future growth.
Photo: Bijay Chaurasia , CC BY-SA 4.0, via Wikimedia Commons
