CLI chief financial officer Andrew Lim said in an interview with Nikkei Asia that such markets could increase in prominence as companies look to build resilience in areas like supply chain and energy amid shocks to globalisation seen during the Covid-19 pandemic.
“Countries with plentiful manufacturing, (and a) low-cost, highly educated workforce, may offer you an alternate destination from your current market,” he said. “These are markets that are primed to offer alternative manufacturing destinations (for links in the supply chain).”
CLI is one of Asia’s largest real estate investment managers, holding SG$124 billion in property assets under management, and SG$86 billion in funds under management. Singapore state investor Temasek holds indirect stakes in the company through a series of its subsidiaries.
“Vietnam has always been an area of tremendous promise,” Lim said, “and I think Vietnam in the new scheme of things will also relatively begin to assume greater importance as a destination for capital, as a destination for investment.
“India has tremendous solar resources,” he highlighted. “These are markets if you are looking for energy redundancy, energy resilience, renewable energy sources, suddenly it becomes important from that perspective.”
As a real estate investor, CLI came out of a restructuring exercise announced last year, where the original CapitaLand group was split into two units, one being a privatised property development business under CLA Real Estate Holdings – an indirect, wholly-owned unit of Temasek.
CLI was the other unit, which was listed on the Singapore Exchange. The reorganisation was carried out to keep investment activities asset-light, according to CapitaLand. With the property development arm under CLA, CLI would focus on growth in assets under management and on capital efficiency.
Roughly a third of the real estate manager’s business is in China, said CLI’s Lim. Despite the slowdown of the world’s second-largest economy and troubles plaguing its property market, the chief financial officer said CLI is in the Chinese market for the long term.
“The issue is how to manage this difficult distortion period, where there are, I would hope, shorter-term factors distorting the overall fundamental attractiveness of the Chinese economy and the Chinese real estate market,” Lim said.
Economists and analysts have estimated that China’s growth will slow to 3.2% this year as the economy reels from the impact of a property market crisis and President Xi Jinping’s strict zero-Covid policies.
China’s real estate sector was hit by a wave of bond defaults among debt-swamped developers that have left scores of residential property developments unfinished. That sparked a nationwide mortgage payments strike among angry homebuyers and triggered a collapse of confidence in the sector, which accounts for about a quarter of the country’s gross domestic product.
“The overall outlook for China will be uncertain, and it will force investors and people who are stakeholders into China to be extra careful once again, even if the fundamentals are strong in specific sectors,” the chief financial officer said.
In the current period of global uncertainty, with geopolitical pressures and soaring inflation persistent, Lim said CLI is scrutinising more heavily how it is deploying its capital and picking opportunities for fresh investments, not just in China but in other markets.
CLI’s exposure to China, he pointed out, was mainly in the nonresidential space, like commercial real estate. It has investments in more than 200 properties across over 40 Chinese cities, including Beijing, Shanghai and Chengdu.
The portfolio includes integrated developments, office, retail, lodging, business parks, logistics and data centres, with total assets under management of SG$46 billion. CLI has a workforce of about 6,600 people in China.
“In our business parks and logistics investments in China, we are seeing very healthy takeup, good rental reversion and strong occupancies,” he said. “We see a lot of opportunities within China, partly because we have been there for almost 30 years.
The portfolio has seen headwinds from China’s zero-Covid approach however, with repeated lockdowns imposed by Chinese authorities hindering CLI from making the most out of its holdings in the country.
According to its earnings release in August for the first half of 2022, CLI posted earnings before interest, taxes, depreciation and amortisation of SG$873 million – 32% lower year-on-year. Rental rebates extended to retail tenants in China were listed as one of the reasons for the drag on results.
“We have seen the economic impact of not being able to recycle capital, while cities have been shut down,” Lim said. “We have seen the economic impact of having to put out some rental rebates for retail tenants if we are forced to close the mall.”
Still, CLI in June announced the establishment of its first onshore renminbi fund in China, in partnership with a domestic asset management company. It holds a 12% stake in the 700 million yuan (US$96 million) fund, which is taking steps toward acquiring an office building in Shanghai.
CLI said it will look at launching more renminbi funds, and work with its domestic and international network of capital partners to capture other investment opportunities in China across different asset classes, in addition to exploring prospects elsewhere in Asia’s economic engines.
“We would love to do more in Vietnam, we are already very active in India,” Lim said. “What recent events have told us is that it’s probably dangerous to put all your eggs in one basket … in an era when globalisation is increasingly being put to the test.”