The Future Of CapitaLand Limited

CapitaLand Limited (SGX: C31) has been finding it hard to grow in the current tough property market. Its operating profit and net profit are expected to fall this year compared to 2015. Its return on equity has been stubbornly hovering around 5% to 6% over the past few years and it is starting to see declining gross margins.

Is the era of CapitaLand over? What does the future hold for this massive property giant?

What it means to be fully integrated

Although many investors might still see CapitaLand as a property development company, it is actually more of a property owner and management company at its current state. In fact, out of its S$35.1 billion assets, more than 76% of it now are focusing on producing recurring income for the group while only 24% of its assets are deployed for development and trading purposes.

CapitaLand is now one of the largest Asia-based property fund managers. It has an asset under management (AUM) of more than S$47 billion. That is even bigger than a pure property manager like ARA Asset Management Limited (SGX: D1R), which has an AUM of just S$30.0 billion as at September 2016.

CapitaLand is also the sponsor of 5 listed REITs and 16 private equity funds. For the next 4 years till the year 2020, CapitaLand is on a path to add an additional AUM worth S$10 billion into its portfolio through four more funds.

Today, CapitaLand is a truly integrated property company. The company focused on developing mainly in China and Singapore. It has also identified key growth areas like Vietnam and Indonesia. It is able to develop a full range of properties from residential, office, retail, hospitality and other integrated developments.

After it sold off its trading properties, consisting of mostly residential properties, it could still manage properties like retail malls and offices for recurring income. Once these assets mature, CapitaLand could then able to recycle these assets through REITs or its private equity funds and redeploy the proceeds to fuel future growth.

Foolish Summary

The weak property market in Singapore is clearly having an impact on CapitaLand. However, given the strong integrated business model of CapitaLand now, there can be a possibility of the company coming back stronger in the future.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns ARA Assets Management.