CapitaLand Restructuring Approval: What Investors Should Know

CapitaLand Singapore stock

Author: Tim Phillips

August 12, 2021

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In March of this year, Singapore’s largest property developer and landlord CapitaLand Limited (SGX: C31) proposed a radical business restructuring. It aimed to unlock shareholder value and improve efficiency for investors.

The culmination of that proposed business reorganisation came to fruition earlier this week, when it was approved by CapitaLand shareholders.

So, what do investors need to know about the creation of one of the world’s largest listed real estate investment managers (REIMs) post the restructuring?

Driving shareholder value

First off, CapitaLand is looking to take its property development arm private while hiving off its fund management and lodging businesses (which include stakes in many namesake REITs) into a separate, listed, entity (see below).

CapitaLand restructuring

Source: CapitaLand investor relations presentation, March 2021

The establishment of this listed arm will be on the Singapore Exchange, and will be named CapitaLand Investment Management (CLIM).

Privately-held CapitaLand Group will then own 51.8% of its shares while the remaining 48.2% will be owned by eligible retail shareholders.

Understanding shareholder benefits

But for investors who own CapitaLand shares, what’s the upside? Well, existing CapitaLand shareholders will receive shares in the newly-listed CLIM, shares in existing REIT CapitaLand Integrated Commercial Trust (SGX: C38U) – also known as CICT – and a cash component too.

All in all, it works out well for shareholders. For every CapitaLand share they current hold, they will receive one new share of CLIM (with an implied value of S$2.823), 0.155 shares of CICT, and S$0.951 in cash.

Overall, that equates to a value of S$4.10. That was a rather generous premium of 24% to CapitaLand’s share price at the time of the announcement in March, when they traded at around S$3.30.

However, that “arbitrage” has obviously now narrowed and CapitaLand shares today are trading at S$4.08 – pretty much at the offer price.

Gaining scale

As I’ve written about before, being able to leverage size in real estate is a formidable advantage. And that’s exactly what CapitaLand is doing with this restructuring.

The combination of CapitaLand Mall Trust with CapitaLand Commercial Trust in 2020, to form CICT, was an example of finding more opportunities by getting bigger.

In CapitaLand’s case, the newly-listed CLIM will see it be the largest listed real estate investment manager (REIM) in Asia and the third-largest listed player globally (see below).

Largest listed REIMs

Source: CapitaLand investor relations presentation, March 2021

With assets under management (AUM) of S$115 billion, CLIM is set to be a powerhouse real estate player both regionally and globally.

It will also allow shareholders to benefit from the possibility of capital recycling as it currently owns six listed REITs in Singapore.

Furthermore, CLIM will look to drive more recurring income by pushing for growth in its lodging platform, with brands such as Ascott and Citadines offering the entity opportunities to create more shareholder value.

Looking to grow even bigger

Following the latest EGM and subsequent approval from shareholders, CLIM has grand plans. Only last month, CapitaLand’s management stated that it aims to achieve funds under management (FUM) of S$100 billion by 2024 (up from the current S$78 billion).

Raising capital, divesting underperforming assets and reinvesting into higher-performing assets will allow CLIM to operate much like a Brookfield Asset Management Inc (NYSE: BAM) does today.

For shareholders of CapitaLand, that can only be a positive thing as the legacy property development business gives way to investors’ thirst for recurring and predictable income from real estate in future.

 

Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares of any companies mentioned.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.