AnalysisSGX

10 things I learned from the 2021 CapitaLand AGM

CapitaLand Limited is one of Asia’s largest diversified real estate groups, owning and managing a global portfolio worth about S$132.5 billion (as at 31 December 2020).  CapitaLand’s portfolio spans across real estate classes which include commercial, retail, business parks, industrial and logistics, integrated development, urban development, as well as lodging and residential. 

During the 2021 AGM, CEO Lee Chee Koon reviewed the Group’s financial and operating performance, ongoing transformation efforts, and addressed CapitaLand’s proposed restructuring via a prerecorded video. A live question and answer webchat was also conducted, with the chairman and CEO answering related questions to proposed resolutions.

At the AGM it was also announced that Chairman Ng Kee Choe would be retiring at the end of the AGM after serving for more than a decade on CapitaLand’s board; Miguel Ko was introduced as the incoming chairman.

1. CapitaLand reported a net loss of S$1.6 billion for FY2020, largely attributed to S$2.5B worth of non-cash fair value and impairment losses. The CEO said that the losses were limited to a few assets impacted by COVID-19, He mentioned that the rest of portfolio remained resilient, adding that the Group was able to fall back on rental income from its office portfolio and new economy assets of business parks, industrial, and logistics assets acquired through Ascendas-Singbridge in 2019.

2. CapitaLand generated approximately S$770M in operating profit after tax and minority interests (operating PATMI), compared to S$1.1 billion for FY2019. The CEO said that the Group achieved S$150M of portfolio gains from its annual S$3 billion capital recycling target. He added that Cash PATMI of S$924 million (S$1.5 billion in FY2019) placed the Group in a position to continue distributing dividends to shareholders in FY2020.

Source: CapitaLand

The CEO said that the Group shored up more than S$15 billion of cash and available undrawn facilities while taking proactive steps to improve cost savings amounting to S$250 million. Gearing was healthy at 0.68 towards end of 2020. The proposed declaration of a first and final dividend of nine cents per share was also passed at the AGM.

Source: CapitaLand

3. The CEO reviewed the CapitaLand’s three strategic growth pillars of Development, Fund Management, and Lodging. On the development front, the Group continues to deploy capital to new economy sectors. The CEO said that approximately S$3.4 billion of new investments were made in business parks and logistics assets, comprising 93% of total investments made across the Group in 2020.

On fund management, efforts to ensure efficient structuring of the Group’s sponsored vehicles include:

  • Supporting the merger of CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust (CCT) to create CapitaLand Integrated Commercial Trust (CICT) in November 2020.
  • Backing the expanded investment mandate of CLCT of investing beyond retail, to acquire business parks and the remainder stake in Rock Square mall from CapitaLand in the 4Q 2020.

The CEO reported that the Group’s fund management fee income increased by 4.4%, amounting to more than S$306M dollars for FY2020.

On the CapitaLand’s lodging segment, the CEO reported that its long-stay portfolio achieved an average occupancy of 50% and delivered positive operating cashflow for 2020. He remarked that this was a satisfactory set of results given the long and ongoing pause in the business and leisure travel sectors.

Management contracts corresponding to 14,200 units across 71 properties were also secured last year and will add to the Group’s future lodging income stream when these new units become operational. The CEO said that this was the highest record achieved in any given year and is a testament to the confidence hospitality players have in CapitaLand’s lodging business model.

4. The CEO highlighted the CapitaLand’s focus on people, digitalization and sustainability as part of the Group’s transformation. According to the CEO, the Group’s push for a future-ready workforce to equip employees with digital knowledge and awareness has long been in progress which enabled CapitaLand to implement remote working swiftly and effectively in 2020. He reported that the total learning hours in digital-related courses increased by more than 20%.

On the Group’s digitalization advancement, the CEO said this was most evident in the expansion of complimentary features of the CapitaStar platform in 2020, which enhanced the offline-to-online experience for customer and tenants. He added that the Group was able to increasingly monetize its digital efforts, citing the example of China reporting approximately RMB200 million of online gross merchandise value, 10 times the value achieved in 2019.

CapitaLand launched its 2030 Sustainability Master Plan in Oct 2020 which is designed to place sustainability at the core. Its 2030 targets include a target of 78% reduction in carbon emissions intensity and tripling its sustainable finance portfolio to S$6 billion.

5. The CEO provided details on the proposed restructuring of CapitaLand. Should shareholders approve the restructuring, CapitaLand’s three pillars of Development, Fund Management, and Lodging will be separated into two entities:

  • The real estate development business of the Group will be placed under private ownership, to be fully held by CLA Real Estate Holdings (CLA) through the proposed privatisation of CapitaLand on completion of the Scheme.
  • The fund management and lodging business will be held by CapitaLand Investment Management (CLIM). It will be listed on the Singapore Exchange with a focus on funds under management growth and to drive recurring fee income.
Source: CapitaLand

On the rationale behind the restructuring, the CEO explained that CapitaLand’s real estate development business is capital intensive, holds longer-term gestation projects, and is thus not fully appreciated by the public markets. He said that the proposed restructuring will sharpen focus, match the Group’s businesses with appropriate capital sources, improve each business’s risk return profile and ultimately enhance shareholder value.

The CEO said that CapitaLand’s unique ecosystem of development and investment management expertise will remain intact and that strategic arrangements between the two entities will enable CLIM to continue accessing CapitaLand’s development pipeline.

Subject to completion of the scheme, CapitaLand will distribute shares to eligible shareholders excluding CLA on a one CapitaLand share for one CLIM share basis. Eligible shareholders will also receive CLA’s entitlement to CICT’s units at cash consideration payable by CLA as consideration for selling the development business to CLA.

The CEO asked that shareholders look forward to the publication of the scheme document and the CLIM introductory document when more information is provided which is expected to be dispatched in 3Q 2021.

Watch our roundtable: Is CapitaLand a Good Stock to Buy Now?

6. In an earlier question submitted before the AGM, a shareholder asked about the property market outlook in Singapore and other key regions, in which CapitaLand operates. The Group’s responses for Singapore and the key regions are as follows:

  • Singapore. Barring future cooling measures, the Singapore private residential market has remained buoyant, underpinned by low interest rates, ample liquidity and healthy project launches pipeline. The industrial property market is generally expected to be resilient, driven by a recovering manufacturing sector, particularly the electronics, biomedical, food logistics and e-commerce segments.
  • China. The country’s economy is expected to be boosted by domestic demand and exports, with GDP growth estimated above 6% in 2021. Office and business park leasing activities are expected to lead steady growth, with space demand dominated by high tech, finance, biopharma and business service sectors.
  • India. Performance of CapitaLand’s business parks may be negatively impacted to varying degrees in the near term due to COVID-19. However, with increased digitalisation, IT service demand, and e-commerce growth, the Group remain optimistic about the relative longer-term resilience of the India business park/logistics asset class.
  • Vietnam. The country’s housing market is expected to recover further in 2021 on the back of increased infrastructure investments by the Vietnamese government and improvements of the legal framework. Manufacturing expansions and production shifts into Vietnam are also expected to drive the performance of the office and industrial/ logistics segments.

7. The following questions were raised at the live question and answer during the AGM. On the CapitaLand’s dividend policy, will the Group resume scrip dividends like last year? How will the dividend policy change under the new structure going forward?

Chairman Ng Kee Choe answered that the Group is in a good position financially, with the CEO adding that it is not a requirement for the company to continue with the scrip dividend requirement after the Group’s review of its balance sheet

On the new dividend policy, the chairman said the structure will be decided by the new organization CLIM, and take into account business conditions and performance. The CEO added that the Group is in the process of review and will provide more details of the new dividend policy when the documents are ready.

8. How much will the board and senior management’s remuneration be impacted resulting from the ongoing covid crisis? The chairman said that the remuneration system is a function of the Group’s financial performance and results. Hence, the Group’s FY2020 performance led to the board and senior management taking a pay cut last year. Comparing 2020’s remuneration to 2019, he said that the CEO’s total compensation was cut by 40% while key management personnel remuneration was cut by 30%.

9. Can the board comment on the synergies and benefits derived from the earlier takeover of Ascendas-Singbridge? The CEO said that the takeover deepens expertise in core markets and provided immediate capabilities to markets that the Group is not traditionally exposed to — namely industrial parks, data centers, and logistics.

He added that the performance of the new economy asset classes (i.e., business parks, logistics and data centers) added resilience and stability to the overall performance of the company, as traditional assets classes were impacted by COVID-19.

10. With the re-emergence of the second wave of COVID-19 in India, can the management share if there is any immediate impact on India operations? The CEO said that even amidst the ongoing COVID situation, the Group’s business in India is resilient with rent collections remaining stable at more than 90%. He emphasized that the wellbeing, health, and safety of staff, customers, and partners are of top priority at the point of time. He added that the Group is working closely with the team in India on providing additional support to alleviate the situation.

The fifth perspective

CapitaLand’s retail, hospitality, and residential businesses bore the biggest brunt of the economic impact of COVID-19. However, the Group’s globally diversified business model and real estate expertise mitigated the impact to the Group’s overall portfolio. The Group also displayed strategic forward planning with its entry into new economy assets in 2019, which has positively contributed to the Group’s portfolio when traditional assets were impacted by the pandemic.

Notable developments for investors to take note of include:

  • New economy asset classes form about 93% of CapitaLand’s investments providing resilience and future growth to the portfolio.
  • Lodging business growth as CapitaLand secured a record 14,200 units in FY2020 (despite the pandemic) which will add to the Group’s future lodging income stream when these new units become operational.
  • The proposed restructuring of CapitaLand is designed to place greater focus on the Group’s asset-light fund management and lodging businesses to unlock more value for shareholders.

Existing shareholders will be anticipating the scheme and introductory documents setting out further details of CLIM including its business strategies and future plans which are expected to be dispatched in 3Q 2021.

In the meantime, CapitaLand emphasized that business will go on as usual. Shareholders will remain observant as the Group pivots towards new economy real estate asset classes, and growing fee income streams via fund management and lodging.

Watch our roundtable: Is CapitaLand a Good Stock to Buy Now?

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Julian Kay

Julian graduated with a Bachelor of Business honours degree in banking and wealth management from the University of College Dublin. He possesses CFA Level I and IBF Level 1 Fund Management qualifications, and was previously in the investor relations industry.

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