In 2021, CapitaLand privatised its development business, leaving CapitaLand Investment (CLI) as the sponsor of its four REITs and two property trusts. Of these six vehicles, five are listed in Singapore. Among them are Singapore’s largest and Asia Pacific’s third-largest REIT, CapitaLand Integrated Commercial Trust (CICT); Singapore’s largest business space and industrial REIT, Ascendas Reit; Asia-Pacific’s and Singapore’s largest hospitality trust, Ascott Residence Trust (ART); the first and largest China-focused Singapore REIT CapitaLand China Trust (CLCT); and Singapore’s first and only Indian property trust, Ascendas India Trust (a-iTrust).
Since September 2021, CLI has successfully restructured its business and relisted on the Singapore Exchange as a leading global real estate investment manager (REIM) with a deep Asia focus. Under this new business model, CLI will stay relatively asset-light compared to the old CapitaLand.
The business model will allow CLI’s revenue and operating patmi to be more stable, while the steadily rising AUM, which includes funds under management (FUM), lodging units under management (LM) and on balance sheet real estate, can provide opportunities for growth.
In its REIM model, CLI is prepared to use its balance sheet to incubate funds and properties that can subsequently be offered to its REITs and private funds. CLI started in 2021 with around $10 billion of balance sheet assets that can potentially be converted into FUM held by its REITs and private funds.
Supporting the REITs
In the past three years, CapitaLand (pre-restructuring) and CLI (post-restructuring) have recycled some $5.5 billion to the REITs. Divestments from sponsor to REITs were done with careful consideration to strike a balance between returning value to the sponsor’s shareholders while also ensuring yield and DPU accretion to the REITs and their unitholders.
See also: CICT's manager proposes to acquire ION Orchard at $1.85 billion, subject to EGM
This approach is consistent with the old CapitaLand’s support for its REITs. For example, in 2020, CapitaLand divested five China business parks to CLCT, setting the REIT on the path of asset class diversification. CLCT went on to acquire four logistics properties from a third-party vendor in 2021.
Also in 2021, a-iTrust announced that it will invest in the development of its first data centre campus — located in Airoli, Navi Mumbai — with full control of the design and quality of the project by leveraging CapitaLand’s data centre expertise. This was a milestone transaction that marked the diversification of a-iTrust, which predominantly owns business parks and logistics properties, into data centres as it takes full advantage of the opportunities arising from India’s rapid digitalisation.
Joint ventures with sponsor
See also: CICT's manager proposes to acquire ION Orchard at $1.85 billion, subject to EGM
As the sponsor to its REITs, CLI collaborates or joint ventures with its REITs either in development or redevelopment projects, or to acquire a portfolio. The most visible of these joint ventures are state-of-the-art, green buildings such as CapitaGreen and CapitaSpring, which were redevelopments of car parks in the CBD.
CapitaGreen is 100% owned by CICT while CapitaSpring is 45% owned by CICT, with CapitaLand Development (CLD, the privatised development arm of CapitaLand Group) holding another 45% and Mitsubishi Real Estate Asia owning the remaining 10%. CICT has a call option to acquire the rest of CapitaSpring’s commercial components that it does not own.
A testament to CICT’s value creation abilities, CapitaGreen’s occupancy was 92.7%, and CapitaSpring, which was completed in November 2021, was 99.5%, as at June 30.
Similarly, ART and The Ascott Limited (TAL) announced in June 2021 that they had jointly invested in the development of a freehold 679-bed purpose-built student accommodation (PBSA) in South Carolina, US, for US$109.9 million ($146.2 million) within walking distance of the University of South Carolina (USC).
ART and TAL held an initial 45% each in the property. The remaining 10% is held by the developer of the project, which is expected to be completed in 2Q2023. On August 15, ART announced its plans to acquire nine quality serviced residences, rental housing and student accommodation properties across five countries, including TAL’s stake in the USC-related PBSA, for $215.2 million. The accretion to distribution per stapled security is estimated at 3.0% on an FY2021 pro forma basis, based on the placement price of $1.12.
Uniquely Singapore
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Undoubtedly, the most successful investment product launched by the Singapore Exchange is the S-REITs, which now account for more than 10% of market capitalisation. The old CapitaLand was instrumental in pioneering the external S-REIT model, where CapitaLand held a major stake in the REIT, owned the manager, supported the REIT with a pipeline of the best assets, and would backstop any capital raising by the REIT.
As at Aug 19, CLI’s REITs and business trusts account for 25% of the S-REITs market capitalisation. While CLI was listed only in September 2021, its journey as a REIM actually began two decades ago with its listed funds business. CLI was the frontrunner in the REIT space, growing within and beyond
Singapore’s REIT market. The story of Singapore’s emergence as a global REIT hub is closely intertwined with the launch and growth of CLI’s listed funds business. The listing of CLCT (CapitaLand Retail China Trust as it was then) was a landmark of sorts, bringing the first REIT with Chinese assets to the Singapore Exchange. Its model has been copied by REITs with Chinese assets.
Subsequently, REITs with US assets were listed in Singapore. To date, neither REITs with Chinese assets, nor REITs with US commercial assets have been able to replicate the success of CLCT. The old CapitaLand acquired Ascendas-Singbridge in July 2019, which led to the folding of Ascendas Reit, a-iTrust and Ascendas Hospitality Trust into its stable. The acquisition was timely in that it empowered CLI with a portfolio of New Economy assets. Ascendas Reit provides investors with exposure to the US, Europe/United Kingdom and Australia, in addition to its home base of Singapore; while a-iTrust remains the only avenue for SGX investors to gain Indian real estate exposure. Ascendas Hospitality Trust was merged with ART in 2019. As the largest hospitality trust in Asia Pacific, ART offers investors exposure to 15 countries in Asia Pacific, Europe and the US. CICT and Ascendas Reit The CLI REITs are often viewed as leaders in their respective sectors, with portfolios of stable, income-producing properties. Celebrating their 20th anniversary in July and November are CICT and Ascendas Reit respectively. CICT was formed from the merger of CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust in 2020.
Ascendas Reit was the second REIT to list in Singapore. From being an almost pure retail REIT with three malls in Singapore (during the IPO in 2002), CICT is now a commercial REIT focused on retail, office and integrated developments with 26 properties spanning Singapore, Germany and Australia. Its integrated development portfolio includes Raffles City Singapore comprising a retail mall, an office tower, two hotels and a convention centre. Funan, which was an IPO property back in 2002, was redeveloped into an integrated development comprising a retail mall, two office towers and a serviced residence in 2019.
Diversification mitigates dependency risk and provides stability. For CICT, with its mix of office, retail and integrated developments, no single tenant contributes more than 5% to gross rental income.
“We position ourselves quite clearly. The function of the REIT is to invest in income-generating assets. We constantly try to see if we can bring more productivity and value to our assets via AEI or redevelopment. If such possibilities do not exist, we will explore divesting the property,” explains Tony Tan, CEO of CICT’s manager, during the REIT’s 1HFY2022 results briefing.
CICT is also embarking on a $62.0 million AEI to transform CQ @ Clarke Quay into a day-and-night destination for both locals and tourists, in line with the ongoing rejuvenation of the Singapore River precinct. Around 34% of the total project cost is dedicated to green features and its green building rating is expected to be upgraded from Green Mark Certification to Green Mark GoldPLUS by the Building and Construction Authority (BCA) upon completion.
Ascendas Reit grew from eight industrial properties in Singapore to 228 properties across four developed markets. Ascendas Reit was the first S-REIT to undertake development on its own balance sheet: Cold Storage Singapore and Courts, worth $111 million. In 2015, Ascendas Reit diversified its portfolio geographically with its maiden acquisition of 26 logistics properties in Australia for $1 billion, thus beginning the journey of adding more value-accretive and resilient properties located in developed markets in its portfolio.
Ascendas Reit has been making significant investments in logistics properties as well as properties with a tech focus, such as data centres in Europe, tech offices in the US and a life science campus in Singapore. Ascendas Reit’s exposure to these assets now accounts for a significant 81% ($13.2 billion) of its AUM and 78% ($952 million) of revenue in FY2021. Ascendas Reit has grown into a global REIT anchored in Singapore, with a strong focus on tech and logistics properties in developed markets.
Committed to ESG
Beyond strong financial performance, CLI and its REITs have been consistently recognised by the market as beacons of strong corporate governance. At the Singapore Governance & Transparency Index 2022, ART topped the REITs & Business Trusts category for the second straight year. Ascendas Reit was placed second and CICT fourth, while a-iTrust was ranked sixth and CLCT 11th.
In line with CapitaLand’s focus on sustainable finance to spur ESG initiatives, as laid out in its 2030 Sustainability Masterplan, CapitaLand’s REITs secured $2.906 billion of sustainability-linked financing in 2021 alone. Part of the interest rate savings will be used to pilot suitable innovation projects that are impactful and scalable to meet CapitaLand’s sustainability goals.
ESG funds may underperform the market, but saving the environment and pivoting to renewables have taken on more urgency following the volatility and sharp increases in the price of energy this year.
