CapitaLand Investment reports an increase in fee income from capital recycling: 5 key takeaways from the latest real estate business update.

CapitaLand Investment Limited (SGX: 9CI), or CLI, is next in line to report its third quarter 2023 (3Q 2023) update. The leading real estate player provided details of his various businesses and revealed his success in increasing assets and funds under management as well as recurring commission income. CLI also noted continuing challenges and potential risks as we approach 2024. Here are five highlights from the group's latest business update that investors should be aware of.

1. Slight decrease in total income

For the first nine months of 2023 (9M 2023), CLI reported a slight 3% year-on-year decline in total revenue to $2.1 billion Singapore. Of this amount, the Real Estate Investment Business (REIB) division accounted for 64%, while the Fee Income-Related Business (FRB) took up the rest. REIB saw 9M 2023 revenues decline 8% YoY to SGD1.44 billion, but this was offset by 9% YoY growth in FRB revenues to SGD799 million. In the case of the FRB, the main growth came from the management of hotels and commercial establishments. This growth was offset by a nearly 30% annual decline in fee income from private fund management.

2. Growth in assets under management and recurring fee income

CLI continues to make impressive progress in increasing assets under management (FUM). FUM grew 13.6% from SGD 88 billion at end-2022 to SGD 100 billion as of September 30, 2023. However, fund management fee income (FM FRE) declined from S$339 million in 9M 2022 to S$304 million in 9M 2023. Prior year commission revenues totaled $89 million Singapore dollars, including one-time event revenues, compared to $32 million Singapore dollars for 9M 2023. Considering these elements, CLI's recurring revenues grew 9% p.a. to $272 million Singapore for 9M 2023.

3. Continuous efforts to reuse capital

CLI reports continuous capital reuse, although it has been slower this year compared to previous years. The group has sold a total value of $1.2 billion to Singapore until November 8, 2023. Of this amount, most (45%) of the assets were sold to licensed funds and another 32% were sold to external funds.

4. Admirable success in attracting private capital

The group has seen a healthy development in private capital raising, with a total of $3.5 billion Singapore dollars raised over 9M 2023. This amount already exceeds Singapore's $2.5 billion for the full year 2022 and is more than double the $1.5 billion Singapore raised in 2021. CLI's private equity funds (PE FUM) total $29 billion Singapore, with five funds launched since the beginning of the year. Some of the investments made in 3Q 2023 include a $112 million Singapore gradient A-logistics asset in South Korea and a $166 million Singapore international technology park in Chennai, India. Meanwhile, CLI has also launched its first health and healthcare fund, which targets the health and healthcare sector in Southeast Asia. The fund was launched with a $350 million Singapore exposure to both CLI and Pruksa Holding (BKK: PSH) with a target size of $500 million Singapore. There will be an opportunity to increase the size of the fund to $1 billion Singapore to acquire assets in Singapore, Malaysia and Thailand in the health, wellbeing, accommodation and accommodation sectors.

5. Healthy growth of the accommodation platform

In its hotel management division, CLI has seen healthy growth in hotel management revenue (LM FRE) and room count. The number of rooms increased 5% CAGR to 163,000 rooms, 9.5 thousand rooms were signed in 55 properties and close to 6.2 thousand rooms were opened in 33 properties in 9M 2023. LM FRE grew 31% YoY to 249 million Singapore dollars with a target to reach 500 million Singapore dollars by 2028. A recovery in airline and tourism is clearly looming as the division reports 25% year-on-year growth in revenue per room (RevPAU) to $89 Singapore dollars for 9M 2023. Singapore saw a healthy 36% year-over-year increase in RevPAU to $198 Singapore, while RevPAU in North Asia (excluding China) was double last year's figure at $143 Singapore. Both Singapore and Europe have RevPAUs 30% and 17% above pre-COVID-19 levels, respectively. The return of tourists from China also boosted employment by 12 percentage points.

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Disclaimer: Royston Young does not own shares in any of the companies mentioned.