China Confounds CapitaLand Investment as Profit Slumps

Mint

2 days ago

CapitaLand Investment Ltd.'s first-half profit sank, as the Singapore-based real estate investment manager continued to grapple with asset divestments amid global uncertainty, subdued deal-making, and persistent headwinds in key markets such as China.
The firm, backed by state investor Temasek Holdings Pte, reported net income of S$287 million for the six months ended June 30, down 13% from a year earlier. Revenue fell 24% to S$1.04 billion, although it slightly beat a S$1.03 billion consensus estimate of two analysts compiled by Bloomberg.
Shares of the firm fell as much as 4.3%, the most since May. So far this year, the firm's stock has under-performed Singapore's benchmark equities index.
'China continues to confound us in the market,' said Chief Operating Officer Andrew Lim in a briefing. 'We are doing everything we can but I think it's going to take a little bit more time and effort.' He also warned of 'choppiness' in the firm's future results due to the impact of uncertainties delaying investors' decisions.
The firm has been trying to manage its China exposure by wooing onshore investors, and plans to list a local real estate investment trust later this year. Chief Financial Officer Paul Tham also said at the same briefing that it hopes to sell more than S$500 million in Chinese assets later this year, including possibly to an onshore fund it set up. The bulk of its S$4.3 billion assets on its balance sheet are in China.
The firm attributed its drop in profit due to the loss of contributions from divested assets, the absence of a one-off tax write-back recorded last year, and weaker fund performance and transaction fees. It has managed to recycle about S$584 million of capital as of Aug. 13, though it expects a pickup in the second half. In roughly the same period last year, it made about S$1.6 billion in effective divestments.
Traditionally part of developer CapitaLand Group Pte, the investment arm has had a rocky ride since being listed as part of a restructuring in 2021. The manager, which oversees numerous private funds and real estate investment trusts, has been buffeted by global tensions hitting deal-making appetite and a downturn in China, where its sizable exposure means it has borne the brunt of a yearslong property downturn. It said rents in China fell across all sectors.
Asked about whether it was looking at Hong Kong's troubled market, Chief Executive Officer Lee Chee Koon said there were 'interesting' assets there including student accommodation, data centers as well as offices that can be repositioned into hospitality products. He declined to comment on potential deals.
Bloomberg has previously reported that Hong Kong's New World Development Co. is in talks with investors including CapitaLand as it seeks to dispose of assets to improve liquidity.
'The pace of recycling has not been as fast as we would like,' said Lee on China, but said activity should pick up. The mainland's real estate sector will take a few more years to recover, and Hong Kong's will as well when China's economy strengthens, he said.
Meanwhile, the firm has been increasing investments in sectors like data centers and private credit. It's also made inroads in Australia, Japan and India. It's also tapping Kishore Moorjani, a former senior managing director at Blackstone Inc. to spearhead and expand private credit and special opportunities businesses.
It's seeking to reduce its exposure to China to 15-20% of its targeted S$200 billion in funds under management by 2028, a more conservative goal. China took up about 26% of its funds under management metric — which counts assets under both its listed and unlisted funds and amounted to S$116 billion at the end of the first half.
CFO Tham said that the firm has stopped tracking and reporting another metric, its real estate assets under management, amounting to about S$136 billion at the end of 2024, because it confused the market and largely came from its lodging business.
With assistance from Nina Trentmann.