CapitaLand Investment Earnings: Here’s What Investors Should Know

Invest - What Type of Singapore REITs Should You Buy

Tim Phillips

August 12, 2022

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For dividend investors in Singapore, the normal – you could even say “default” – option is to buy REITs. That’s because they provide stable income streams based off their property portfolio.

However, more recently in the Lion City, we have seen traditional property groups transforming themselves and generating shareholder value.

One such group is CapitaLand Investment Ltd (SGX: 9CI), which was formerly known as CapitaLand Group.

Having shed itself of its less-than-desirable development arm, the new entity focuses solely on funds management and lodging (including its many stakes in listed REITs).

So, with CapitaLand Investment having recently reported its H1 2022 earnings, what should investors know about its first full half-year as a separate company?

Strong revenue and fee income growth

The first half of 2022 was a solid one for CapitaLand Investment. The firm reported revenue of S$1.35 billion in H1 2022, up 29.1% year-on-year.

Meanwhile, reported profit after tax and minority interests (PATMI) was down 38.3% year-on-year to S$433 million.

However, that was to do mainly with lower portfolio gains and rental rebates extended to China retail tenants.

If investors look at operating PATMI – a figure that strips out volatile portfolio gains – then this increased at a healthy clip of 31% year-on-year to S$346 million.

Breaking it down further, its fee-income related business (FRB) was a key driver. This is the fees that CapitaLand Investment collects from holdings such as listed funds management and lodging management.

Here, FRB for the group was up 16% year-on-year in H1 2022 to S$507 million. This growth was driven mainly by stellar performances from private funds and lodging management fees.

As readers can see below, the FRB portion of its business (which is capital-light) is starting to generate a heftier chunk of overall operating PATMI.

CapitaLand Investment FRB operating PATMI

Source: CapitaLand Investment Ltd H1 2022 earnings presentation

Continuing to recycle capital

Investors should remain cognisant of the fact that CapitaLand Investment is also operating as a capital allocator.

The company’s FY 2022 capital recycling plans are on track as it made S$1.6 billion of divestments during the period. That made up more than half its S$3 billion annual divestment target for this year.

Meanwhile, its investments totalled S$2.5 billion across a range of sectors so far this year.

For example, Ascott Residence Trust (SGX: HMN) recently announced the acquisition of the Oakwood brand global serviced apartment provider.

It accelerates Ascott’s own growth trajectory and will provide CapitaLand Investment – which includes Ascott under its lodging management business – to benefit from asset-light, fee-related earnings (FRE).

Strong fundamentals and growing FRB

Finally, the group has a healthy liquidity position, with S$7.4 billion in cash and undrawn facilities of its treasury vehicles.

It also has a net debt-to-equity ration of just 0.51x with an interest coverage ratio (ICR) of 4.9x. With operating cash flow of S$390 million in H1 2022, CapitaLand Investment is also generating decent cash flows.

Overall, it was a solid first half for the recently-listed entity. It didn’t declare a half-year dividend but based on its FY 2021 normal dividend per share (DPS) of 12 Singapore cents, shares are currently yielding 3.1%.

That dividend will likely expand in future if CapitaLand Investment can continue to grow the more reliable FRB portion of its business.

Disclaimer: ProsperUs Head of Content & Investment Lead 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. He is also a certified SGX Academy Trainer. In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.