As a real estate investment manager or REIM, CLI’s earnings profile is different. As part of the old CapitaLand’s restructure as a REIM, CLI now reports funds under management (FUMs), lodging management (LM), fee-related earnings (FRE), fee income-related business (FRB), ratios such as FRE/FUM and metrics such as LM FRE. (CLI has gone to town on abbreviations but these are the key ones.) Traditionally, FRE and FRB are viewed as annuity-like, and less volatile than developer earnings which tend to be “lumpy”. The key to growth and higher earnings is to manage more funds efficiently and keep a fairly liquid balance sheet, as REIMs tend to be asset-light.
Last year, the share price of CapitaLand Investment (CLI) eked out a gain of 8.5%, with a total return including dividends reinvested of more than 12%, according to Bloomberg. By contrast, the FTSE ST All Share Real Estate Index fell by 11% in 2022, and by a lower 7% if dividends were reinvested based on Bloomberg’s calculations. Whether CLI continues to outperform the broader real estate sector this year remains to be seen.
However, with the rapid rate hikes by the US Federal Reserve from May 2022 onwards, the real estate and REITs sector had to contend with higher interest expenses and lower valuations, as valuers in some developed markets marked commercial property valuations down.
