WHILE there is &ldquo quite a bit of work to catch up&rdquo on in the second half of the year, CapitaLand Investment Limited : 9CI -4.39%(CLI) has a healthy balance sheet, well-balanced fee income contributions and is keeping its powder dry to take advantage of opportunities that arise.

 

Speaking at an earnings briefing on Thursday (Aug 11) morning, group chief executive Lee Chee Koon said that apart from capital recycling, the property investment manager will continue to focus on the execution of its fund strategies.

 

Meanwhile, contributions to its fee income are now fairly evenly split across its 4 key sectors of new economy (business parks, logistics, industrial and data centre), lodging, office and retail.

 

Last September, CLI was carved out of CapitaLand as a new, listed unit for its fund-management and lodging-management businesses, as well as its real estate investments. CapitaLand&rsquo s development arm operates separately under the privatised CapitaLand Development.

 

CLI posted a 38.3 per cent drop in profit for the first half year ended Jun 30, to S$433 million, from S$702 million last year due to &ldquo lower velocity in asset recycling activities&rdquo , particularly in China, it said in a regulatory filing on Thursday (Aug 11).

 

The group&rsquo s half-year earnings per share also fell 66.4 per cent to S$0.084 from S$0.25 previously, despite a 29.1 per cent gain in revenue to S$1.35 billion from S$1.05 billion in H1 2021 &mdash boosted by higher contributions from its fee income-related business (FRB) and real estate investment business (REIB).

 

The rise in revenue was driven mainly by the strong recovery of the group&rsquo s lodging operations, post-relaxation of travel restrictions across most countries, said CLI.

 

This was further uplifted by contributions from the newly acquired business park and data centre in China as well as student accommodation properties in the US, though the absence of contributions from properties divested in Japan, Singapore and China in 2021 partially offset it.

 

Top line for its FRB segment grew 9 per cent year on year to S$476 million, fuelled by higher fee-related earnings from private funds and lodging management, while REIB revenue rose 44 per cent to S$967 million on the back of improved occupancy and room rates for lodging properties.

 

No dividends were declared this time, the same as last year.

 

CLI&rsquo s funds under management (FUM) is flat at S$86 billion as at end June, with the group on track to reach its target of S$100 billion by 2024.

 

&ldquo We were being very careful about deploying (capital) only when we felt that it is right to do so,&rdquo said group chief financial officer Andrew Lim. &ldquo We have ample dry powder ready for deployment.&rdquo

 

CLI has introduced an embedded FUM concept, in which there is some S$3.5 billion to S$3.7 billion that is already spoken for and will materialise in the near future.

 

In its core China market, CLI suffered from lower portfolio gains and higher rental rebates provided in H1 2022 to support some of its retail malls or trade categories that were mandated to close temporarily due to the pandemic.

 

Still, it expects the Chinese market to be a lot stronger in the second half and wants to take full advantage of what it believes will be a lot of opportunities there - where it has a competitive advantage - to make up for the &ldquo lost&rdquo second quarter.

 

Lee said there is strong pent-up demand from China&rsquo s domestic capital looking for quality assets, to deploy capital with managers they feel comfortable with and in a portfolio that is generally well-managed.

 

&ldquo You will see us leveraging a lot more on domestic capital to help fund the growth of the China business,&rdquo he added.

 

In H1 2022, the group unlocked S$1.6 billion of capital through divestments, slightly more than half its annual capital recycling target of S$3 billion, but far lower than the S$11.2 billion in the year-ago period.

 

Things were exacerbated by the situation in China, where CLI was not able to recycle any capital.

 

Lim is hopeful that as China approaches a more normalised operating environment in the second half of the year, CLI will have the opportunity to catch up on some of its planned recycling. However, he noted the group is also coming back down to a more normalised run-rate of capital recycling.

 

On the lodging front, CLI is on target to reach 160,000 lodging units by 2023, with its July 2022 acquisition of Oakwood Worldwide adding approximately 15,000 keys to its portfolio. With this acquisition, CLI has 153,000 lodging units under management, an increase from 133,000 units at end 2021.

 

Lim highlighted that the lodging operations provide CLI with two bites of the cherry - the fund and lodging management fees. &ldquo And if you get it right, that' s actually a very interesting part of business that not many people can do,&rdquo he said.

 

Commenting on reactions to the first half results on CLI&rsquo s share price, which fell as much as 7.6 per cent to S$3.79 in early trade, Lee asked for patience &ldquo as we build the CLI business model&rdquo .

 

&ldquo We made the commitment to do the restructuring, to go asset-light, to build a fee income business. It takes time to make things happen. I&rsquo m generally confident because of the teams that we have built up, the opportunities that we are seeing,&rdquo he said.

 

He added that over the next few months, there will continue to be capital recycling and new fund initiatives, including in China - with the ability to launch new renminbi products.

 

&ldquo Once you see those happening, I think you will be a lot more reassured. The portfolio is extremely resilient. Many of the assets that we own are in good locations and there are rental escalations embedded in most of the assets whether it' s in the REITs or the funds, so our balance sheet is extremely healthy.&rdquo