CapitaLand Investment Aims for Ambitious $1 Billion Profit

CapitaLand Investment (CLI) is aiming high with ambitious profit goals, setting a target to surpass $1 billion in operating earnings by 2028-2030. This goal comes on the heels of a disappointing first half for fiscal year 2024, where CLI reported a 14% drop in operating profit after tax and minority interests (PATMI) to $296 million. The company plans to define its growth through its four fee income-related businesses (FRBs), which include earnings from REITs, private funds, lodging management, and commercial management.

The firm’s assets under management (AUM), currently standing at $113 billion—including $69 billion from listed REITs and funds and $44 billion from private funds—will play a crucial role in achieving these targets. To drive growth, CLI’s strategy involves an aggressive expansion of its REIT platform, increased private funds activity, and significant efforts in lodging and commercial management through a combination of organic growth, new listings, and strategic mergers and acquisitions.

Expansion Down Under

CLI has laid out its plans for robust growth in Australia, appointing Angelo Scasserra as CEO of CLI Australia and Rahul Bharara as Chief Investment Officer, both expected to start in early 2025. The company is poised to invest up to A$1 billion (approximately $876.7 million) to augment its AUM in this market.

In a notable development, CLI closed its inaugural Australian Credit Programme in September, raising A$265 million with assistance from Asian investors. This initiative signals CLI’s growing venture into private credit, a segment offering attractive returns between 12% and 14%.

A Shift from China

As CLI navigates through the uncertainties brought on by fluctuating interest rates and a challenging Chinese market, focus is shifting towards regions like India, Japan, Korea, and Australia. The firm has adapted to these dynamics by increasing its presence in Asia, excluding China, where it expects AUM to account for 25%-35% of total holdings by 2028, an increase from the current 18%.

CLI's Group CFO, Paul Tham, pointed out the negative impacts of China’s fair value adjustments on returns, emphasizing a need to focus on operational performance. Despite these hurdles, CLI's strategy in China has been fruitful, having recycled $24 billion in the past three years.

Future REIT Developments

Andrew Lim, CLI’s Group COO, has expressed that within five years, CLI may establish one REIT listed onshore in China, India, and Australia. With the Chinese real estate market being the second largest globally, CLI seeks to capitalize on local conditions to launch a C-REIT that complements its existing RMB financing strategy.

The Indian REIT market is burgeoning but requires careful navigation due to existing fee structures that pose challenges. Meanwhile, CLI's ventures into the Australian market continue, with plans to leverage both domestic and international private credit opportunities.

Cautious Optimism Ahead

Despite a complex landscape, analysts remain cautiously optimistic about CLI's future, noting that while the transition may take time, the company is likely laying foundational work for sustainable growth. The priority for CLI remains clear: focus on top-line growth and earnings, with capital allocation leaning heavily toward growth opportunities ahead of dividends and stock buybacks.

As CLI continues to evolve its strategy amid global economic challenges, the implications for investors and stakeholders will be significant, making it a company to watch closely in the upcoming years.