CapitaLand Restructuring: Should You Buy CapitaLand Investment (9CI)?

Once upon a time, real estate giant CapitaLand was regarded as one of the most foolproof companies to invest in in Singapore. But then, Covid-19 happened. Hands up how many of you haven’t dared to check your stock portfolio since the pandemic began?

If you’ve been holding onto CapitaLand stocks or looking to get your hands on some, now’s the time to take your head out of the sand, because the property giant is now restructuring into two different entities.

Disclaimer: This article contains information on CapitaLand share prices as well as the company’s recent performance trends. It is meant as a guide for readers only, not financial advice. Please practise your own discretion when making investment decisions.

What is CapitaLand?

Hanging out at a CapitaLand mall is the quintessential Singaporean past-time. CapitaLand is behind some of Singapore’s most recognisable malls, including ION Orchard, Plaza Singapura, Jewel Changi Airport and Bugis Junction, as well as prominent heartland malls like JCube, Westgate and Junction 8.

The company has developed and currently owns over 80 malls not just in Singapore, but also in China, Japan, Malaysia and Cambodia.

With a hefty market capitalisation of about $15 billion, CapitaLand (C31) was one of Singapore’s biggest real estate giants and was tracked on the Straits Times Index.

But all good things come to an end, and earlier this year, CapitaLand made the announcement that it would restructure.. Trading for the stock ceased on 9 Sep 2021 and it was delisted the next day.

CapitaLand shareholders received 100 shares of the new entity CapitaLandInvest (more on that later), $95.10 in cash and 15.15 units of CapitaLand Integrated Commercial Trust for very 100 CapitaLand shares they held, adding up to a value of about $4.102 per share based on valuation of CapitaLandInvest at $2.823.

Why did CapitaLand restructure?

Both real estate and retail have taken a huge beating thanks to Covid-19. The pandemic has been fatal to many businesses which are the ones paying CapitaLand’s rents. In fact, the company posted a $1.57 billion net loss for financial year 2020. Ouch!

So, it’s an understatement to say that CapitaLand’s properties are bleeding money in these dismal economic times. That means it will be difficult for them to continue paying out the juicy dividends their shareholders have grown accustomed to over the years.

In order to maximise shareholder value, they decided to cut off their property development arm, while giving investors the option to continue investing in their investment and lodging platform activities, which have more potential to be profitable in the short-term.

The proposed restructuring will split CapitaLand’s investment management platforms into two entities, only one of which will be listed on SGX.

It will enable CapitaLand to privatise its property development business, cutting it away from the portion of the business that will remain public and tradable on SGX. This will enable shareholders to access short-term value without being dragged down by the losses from the property development side.

What are CapitaLand’s new entities?

CapitaLand (formerly C31) will be split into the following entities:

• CapitaLand Investment (9CI): This entity is the publicly listed one. 9CI mainly comprises two activities — fund management and their lodging management platform. The latter generates income by charging third parties a fee, and the company is banking on growing this part of the business.
• CapitaLand Development: The other entity will comprise the property development business, which will be privatised, and thus not available on SGX. This arm deals with large-scale real estate projects whose profits might only be realised in the longer term.

The new CapitaLand Investment (9CI) share made its debut on SGX on 20 Sep 2021, opening at $2.95 per share, and was the third most traded stock in the moments after its debut. It has been doing well over the past few days despite the overall slump in Asian stock markets due to fears about China’s Evergrande collapsing.

It might be a new and slightly smaller version of the previous CapitaLand, but it’s still nothing to scoff at. In fact, 9CI is one of the largest Real Estate Investment Managers (REIMs) in the world, and the only SGX-listed REIM.

9CI’s management portfolio includes about $119 billion worth of real estate estate assets, with 80% located in Asia. They are also managing $83 billion worth of real estate funds, held in 6 listed REITs and business trusts and more than 20 private funds.

CapitaLand Investment (9CI) vs CapitaLand REITs: what’s the difference?

CapitaLand Investment (9CI) is of interest to retail investors like you and me, but what’s the difference between this and REITs like CapitaLand Integrated Commercial Trust (a.k.a. “the CapitaMalls REIT”)?

As mentioned earlier, 9CI has stakes in 6 CapitaLand REITs. Let’s take a closer look:

REIT	What it covers	CapitaLand Investment’s stake
CapitaLand Integrated Commercial Trust (C38U)	Shopping malls in Singapore	22.9%
Ascendas Real Estate Investment Trust (A17U)	Business spaces, logistics and distribution centres, industrial properties and data centres in SG, Aus, UK, US	18.0%
Ascott Residence Trust (HMN)	Hospitality in Asia Pacific, EU, US	40.7%
CapitaLand China Trust (AU8U)	Shopping malls in China	24.6%
Ascendas India Trust (CY6U)	IT and logistics parks in India	21.6%
CapitaLand Malaysia Mall Trust (KLSE)	Shopping malls in Malaysia	38.1%

Investing in 9CI does give you some exposure to the 6 REITs above, as well as to the 20-over private equity funds and whatever else they choose to add to their portfolio.

However, that does NOT make CapitaLand Investment a REIT or a super-REIT. REITs essentially function as landlords, collecting rent from tenants.

CapitaLand Investment, on the other hand, is a business entity. It is not the landlord of any tenants and is not involved in the REITs’ activities; instead, it “supports” the 6 REITs by injecting capital into them so they can grow.

Before you consider investing, it’s important to understand the difference between investing in a company like CapitaLand Investment versus investing in a REIT. The 2 asset types are theoretically and structurally different.

Should you invest in CapitaLand Investment (9CI)?

CapitaLand shareholders have already had quite a bumpy ride over the past few years, and the challenges posed by Covid-19 could make the cracks in its armour even more apparent. So CapitaLand’s restructuring could be a good thing for investors.

Although smaller than its previous incarnation as CapitaLand, the post-restructuring CapitaLand Investment has quite a diversified portfolio and stands to benefit from the inflow of global capital into Asia.

There’s the threat of Evergrande defaulting, but some commentators think that might actually be an opportunity as CapitaLand will be able to pick up undervalued properties. If 9CI’s early days are any indication, investors seem quite optimistic.

To invest in 9CI, you would need an investment brokerage account that allows you to buy and sell Singapore stocks. You can compare the commission fees for SGX trades on MoneySmart.

Minimum commission fees can vary wildly, from $0.99 to $25 per trade. If you’re investing small amounts and/or making frequent trades, it makes sense to opt for a brokerage with low fees, such as these:

Want to give 9CI a miss in favour of CapitaLand’s REITs? Read our guide to REIT investing in Singapore and compare commission fees for REITs on MoneySmart.

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