,Thinning profit margins from property development in the face of rising construction and land costs could spur others to focus on fund management, analysts said after CapitaLand Ltd unveiled the plans this week.
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SINGAPORE: The move by Singapore’s largest real estate company to split its business into a new, publicly traded investment manager and a privately owned developer may pave the way for local rivals to do the same.
Thinning profit margins from property development in the face of rising construction and land costs could spur others to focus on fund management, analysts said after CapitaLand Ltd unveiled the plans this week.
Builders have also been hammered by the pandemic, which battered markets ranging from hospitality to offices and led to record losses for CapitaLand and its biggest competitor City Developments Ltd.
“For real estate companies with sizable scale of investment properties and fund management business, it also makes sense for them to consider doing the similar restructuring to unlock value, ” said Patrick Wong, a Bloomberg Intelligence analyst.
“City Developments may be another possible candidate to do a similar type of restructuring.”
CapitaLand is seeking to generate more shareholder value from its real estate investments by creating an “asset-light and capital-efficient business, ” it said.
It wants to keep development projects in the private realm backed by its biggest owner Temasek Holdings Pte, given that they can take a long time to generate returns.
Shares of CapitaLand climbed 13% yesterday, the biggest jump since 2001, after a trading halt was lifted. The company plans to offer shares of the new entity at a 24% premium to CapitaLand’s previous closing price.
For the likes of CapitaLand, the next phase of growth involves competing as independent investment managers that can expand globally, said Priyaranjan Kumar, managing director at family office Alvarium Investments.
Privatising the real estate development business, meanwhile, is appropriate because public trading tends to “misprice and discount the intrinsic value given the lack of visible income for relatively long periods, ” Kumar said.
To be sure, some of Singapore’s other main listed developers, such as City Developments and Frasers Property Ltd, are already seeking to expand their investment management businesses.
City Developments, for instance, aims to be a leading fund manager in Asia by 2023 by overseeing US$5 bil (RM20.5bil) in assets.
The fund management business generates stable recurring income that analysts can value easily, said Yap Chee Wee, founder and chief executive officer of Fleur Capital, a wealth management firm. — Bloomberg
CapitaLand will also gain management fees, while property development projects depend on the success of land bidding, which can be uncertain, he added.