CapitaLand Investment Revenue Dips in 2023 YTD, Lodging Fee Income Jumps

Singaporean real estate investment manager CapitaLand Investment (CLI) posted a 3 percent year-on-year dip in revenue for the nine months ending in September, with growth in its fee-earning business partially offsetting declining performance in the real estate investment business, according to a company update released on Thursday.

CLI, which earns fees from managing listed and private funds as well as from its lodging and commercial property businesses, saw fee revenue jumping 9 percent year-on-year to S$799 million for the period, with the lodging vertical surging 31 percent.

“Lodging has had such great tailwinds. It has exceeded our expectations and it exceeded its targets last year, which is why we raised the bar on the targets again for 2028,” CLI’s chief financial officer Paul Tham told Mingtiandi. “Part of the growth driver has been the higher revPAU (revenue per available unit). We are seeing rates go up across all the markets. We expect that will continue to go up.”

The fee business accounted for 36 percent of the company’s total revenue for the period and has been marked as a priority as the Temasek Holdings-backed giant pursues an asset-light growth strategy. CLI saw real estate investment revenue decline 8 percent to S$1.4 billion in the first nine months of 2023 on a year-on-year basis.

Hot Hospitality

The lodging vertical’s strong performance comes as the company targets S$500 million in fee income for the segment in 2028, double the S$249 million logged in the first nine months of this year. Lodging eclipsed commercial management as the largest contributor to CLI’s fee business, accounting for 31 percent of the segment’s revenue mix in the period compared to 25 percent from January through September last year.

The company saw a 25 percent year-on-year jump in its revenue per available unit (revPAU) driven by a 9 percent rise in occupancy and an 8 percent increase in average daily rate across its lodging business.

CLI notched revPAU growth across all regions in the period, with North Asia revPAU surging 110 percent driven by Japan, while Singapore and Europe revPAU stood at 130 percent and 117 percent of pre-pandemic levels respectively.

The company plans to grow the lodging business through new openings and acquisitions. CLI told Mingtiandi it has “a couple hundred” assets totaling approximately 66,000 units in the development pipeline, and “hopes to do more M&A in the sector” as it builds on its Oakwood acquisition in July 2022.

China Drag

CLI’s decline in real estate investment earnings was largely attributed to currency depreciation in China, as well as retail rents and net property income remaining under pressure as softer economic activity continues to weigh on the market.

Returns from the segment, which comprised 64 percent of the company’s revenue during the period, were also dented by CLI having disposed of assets last year and revaluation of properties with its portfolio declining 6 percent year-on-year to S$34.3 billion.

“The big challenge for China has actually been the RMB (renminbi) depreciation. Year-on-year it’s almost 10 percent down against the Singapore dollar, and that has been tough on us from a revenue top line perspective, particularly for Singapore currency denominated reporting,” Tham told Mingtiandi. “That hit our revenue numbers a fair bit.”

Recycling and Rebalancing

In addition to boosting fee income, the company plans to “optimise 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, of which 63 percent were transferred to fund vehicles and the remainder divested externally. The company had 50 assets worth approximately S$10 billion in the divestment pipeline.

Some of the company’s divestments this year include the Courtyard by Marriott Sydney-North Ryde and Novotel Sydney Paramatta for S$95.6 million and 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, expand into new asset classes, and pursue higher yielding strategies such as value-add and special situations.

“We are aware that our traditional sectors – office, retail – are under a little bit more pressure. While hospitality is doing well, we do want to make sure that we have optionality and other growth avenues,” Tham told Mingtiandi. “Self-storage, healthcare and wellness, and credit are three of the key areas we are focused on for future growth.”

This month, CLI 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.

The company’s net debt to equity ratio and interest coverage ratio stood at 0.55x and 3.7x respectively at the end of September. CLI had an average debt maturity of 2.9 years and an implied interest cost of 3.9 percent in the period, which was up from 3.1 percent in 2022.

CLI’s stock price closed down 0.3 percent for the day compared to a 0.2 percent gain in the Straits Times Index.