Shake-up of China's property sector could deliver opportunities for CapitaLand

Sep 20, 2021

THE ongoing shake-up in China's real estate sector levels the playing field and could throw up interesting opportunities for foreign property players such as CapitaLand, said group chief executive of CapitaLandInvest: 9CI +1.36% Lee Chee Koon.

On Monday, CLI made its trading debut on the Singapore Exchange as one of the world’s largest listed real estate investment managers (REIMs) after property giant CapitaLand carved up its business into two separate entities – namely, CLI and privatised property development arm, CapitaLand Development (CLD).

As a listed global REIM, CLI has about S$119 billion of real estate assets under management (AUM) as at June 30. Meanwhile, CLI’s real estate funds under management (FUM) stood at about S$83 billion, held across six listed real estate investment trusts (Reits) and business trusts, and over 20 private funds.

Responding to a question at a briefing on Monday morning, Mr Lee said: “Fundamentally, the three red lines and the regularization of the real estate sector provides, for a foreign real estate player like CapitaLand, a more even playing field.”

“Over the last couple of months, and I believe in the coming few months, we’ll see a lot more interesting opportunities. We do hope that we will have interesting deals to share.”
Dubbed the three red lines, Chinese policymakers have implemented new financing rules for real estate companies that will assess refinancing against certain thresholds to rein in debt build-up among Chinese developers.

In the meantime, CLI is keeping a close watch on the evolving situation in China. Mr Lee added: “We expect to see more measures, at least until the end of next year.”

Meanwhile, high on the agenda for the REIM will be building a strong team to execute its private equity business as well as to continue to grow as a global organization by expanding further in key mature markets such as Europe, the United Kingdom, the United States and Australia. In Australia, where it has over S$3 billion in AUM, it is targeting “four to five times that in a few years,” said chairman of CLI, Miguel Ko. Presently, over 80 per cent of its S$119 billion of real estate AUM is in Asia.

“Our foundation strength is definitely in Asia as compared to Europe and US at this point in time,” said Mr Lee, adding however that CLI is investing in capabilities to strengthen its deal sourcing and fund-raising capabilities in developed markets.

As part of efforts to beef up its private equity fund management business, CLI announced two new additions to its leadership team - Simon Treacy and Patrick Boocock. Formerly a managing director at BlackRock Real Estate, Mr Treacy is CLI’s chief executive officer (CEO) of private equity real estate, while Mr Boocock assumes the role of CEO of private equity alternative assets, joining CLI from Brookfield Asset Management.

On its private funds management business, Mr Lee sees growth opportunities in assets such as data centres as well as business parks, while the group plans to do more in areas such as purpose built student accommodation assets (PBSAs) and rental apartments. “As a company, you will see us moving on all fronts, and if you can find interesting products that can deliver returns, I don’t think it is difficult to bring in investors to invest and grow alongside us,” Mr Lee asserted.

For its part, privately-held CLD will explore new markets - on top of its existing core markets such as Singapore, China and Vietnam - and new asset classes. In addition, it will act as a potential pipeline to CLI, the Reits and funds.

CLI’s management also said on Monday that they continue to see keen appetite from investors who want to build and own serviced apartments despite the pandemic, since serviced apartments have generally weathered the storm better than hotels have. In the first seven months of this year, the group has signed contracts for 40 per cent more units than the corresponding period in 2020. Last year, it had a record year, with over 14,200 units inked.

CLI is striving to hit S$100 billion in FUM by 2024, and to grow its lodging business to 160,000 units under management by 2023. This is up from 123,000 units in 2020.

Shares in CLI were among the most heavily traded on Monday, ending the day at S$2.95 with 25.53 million shares changing hands. Shares in CapitaLand ceased trading on Sept 10.