The world of real estate development and management is evolving, and the question on many minds is whether developers should emulate CapitaLand Investment’s (CLI) strategy. As the company races toward its ambitious goals, the implications for the industry are worth dissecting.
CLI’s Performance and Strategy
CapitaLand Investment (CLI) has faced challenges on the market this year, with its share price dropping 15% year-to-date and 11.7% over a one-year period as of December 16. By comparison, Keppel, an alternative asset manager, saw a smaller decline of 3.1% this year and 1% over the same one-year period. ESR Group, meanwhile, outperformed, with its share price rising 11% this year and 19% over the past year.
Despite differences in focus among the three—CLI, Keppel, and ESR Group—all share a common thread: their roles as sponsors of REITs and funds. CLI, in particular, has made clear its long-term strategy of becoming a premier real estate investment manager (REIM), setting a $200 billion funds under management (FUM) target by 2028.
This shift began in 2021 when CLI separated its development business, which now operates under privately held CapitaLand Development, from its real estate investment and management operations. The focus is on generating recurring income through asset-light strategies.
In its latest move, CLI acquired Wingate Group’s property and corporate credit investment management business for A$200 million (S$173 million). This deal adds A$2.5 billion (S$2.2 billion) in FUM, although it came at a higher cost compared to past acquisitions.
The Race for Recurring Revenue
CLI isn’t the only company emphasizing recurring revenue. Hongkong Land (HKL) recently announced a pivot away from its traditional development-based model to focus on investment properties in Asia’s gateway cities. By 2035, HKL aims to double its profit before interest and tax, dividends per share, and assets under management (AUM), while actively recycling up to US$10 billion in capital.
This approach mirrors strategies employed by industry peers such as Link REIT, Mapletree Investments, and GLP Capital Partners. The common thread? A shift toward capital recycling, fee generation, and recurring income streams—a hallmark of the asset-light model.
Keppel: A Hybrid Strategy?
Keppel’s journey offers an interesting counterpoint. The company initially embraced an asset-light strategy, notably divesting its offshore and marine business and transferring legacy rigs to a special entity, Asset Co. But in a recent twist, Keppel announced it would secure full control of Asset Co, planning to house it within a private fund managed by its asset management arm. This hybrid approach balances monetizing legacy assets with capitalizing on new opportunities, such as data centers.
Analysts speculate that Keppel’s relative outperformance compared to CLI may stem from its diversification into lucrative asset classes like data centers and offshore rigs, which offer robust growth potential.
Challenges Ahead
For CLI, achieving its lofty $200 billion FUM target will not be without hurdles. JP Morgan analysts have highlighted that CLI’s weak share price complicates its transition to a REIM model, with risks of slower growth in the near term. However, the company’s management remains steadfast, focusing on organic and inorganic growth strategies, including the expansion of its lodging management business.
Similarly, HKL faces challenges in implementing its new strategy, particularly as its development properties, primarily in China, weigh on its performance.
The Bigger Picture
As the industry grapples with these changes, one question looms: Do investors prefer asset managers to hold physical assets or embrace a purely asset-light model? The answer may depend on the specifics of asset classes and geographic focus.
This holiday season, as developers and investors reflect on their strategies, the lessons from CapitaLand, Keppel, and others offer valuable food for thought. The future of real estate management may well hinge on striking the right balance between asset-light innovation and the stability of tangible holdings.
Thank you
