Strategy Workshop
Investment
Properties
24th March 2022
Agenda
1. Key Takeaways from Capital Place
2. Asset Classes Discussion and SWOT Analysis
3. Scaling Up Strategy for Office
4. Exit Strategy for Office
5. Branding & Sustainability Financing
CapitaLand Development Investment Properties
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1. Key Takeaway for
Capital Place
D1MENSION, Vietnam
3
Key takeaways for Capital Place
Acquisition
Key Takeaways
▪
▪
▪
Complex structure
Prepare for long, intensive discussion over Turnkey
Contract (from beginning to end)
Issues can arise anytime, involvement of investment team
is required until completion of construction
Upon completion of construction
and commercial settlement of
outstanding matters
Upon completion of project
transfer to New Co
01/08/17
06/12/17
20/03/19
30/05/19
Deposit
Execution of the DFA
Execution of STA
1st
Payment
of STA
11/06/19
11 Jun 2020
11 Dec 2020
2nd Payment
of STA
1st Payment
of Turnkey
After receiving
Deposit
Upon TOC
Last Payment
of Turnkey
CapitaLand Development Investment Properties
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Key takeaways for Capital Place
Leasing
Total NLA
Leased NLA YTD
Occupancy YTD %
93,533m2
35,925m2
38%
Time
Share
2%
Capital Place Occupancy by Sectors YTD
Technology
9%
Real
Estate
10%
E-Commercial
28%
Other
14%
Insurance
14%
Finance &
Banking
23%
Key Takeaways
▪ Focus on securing anchor tenants as
early as possible to fill up space and
generate leasing momentum
▪ Devise strategic rent escalation by
phases and zones (high zone, low
zone)
▪ Early birds will enjoy better benefits
▪ High contract rent and incentives
allocation in early years of lease terms
to achieve higher exit value
▪ Flexible rent and incentive strategy for
retail tenants
CapitaLand Development Investment Properties
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Key Takeaways for Capital Place
Holding structure create flexibility for divestment
CVCVF
Singapore
100%
100%
SF
1
Divest at Trust level – sell out units in the Trust at
a premium
2
Divest the offshore holdings companies at SF or
VGs level
3
Divest 100% onshore company
4
Hybrid divestment structure
100%
100%
VG
51%
Vietnam
VG 2
45%
VG 3
4%
Twin-peaks
100%
Capital Place
CapitaLand Development Investment Properties
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Key Takeaways for Capital Place
Fund establishment structure and divestment
Keys terms of Fund (CVCVF)
Achievements
Fund Inception
25 Sep 2017
Fund terms
8+1+1
Divest at year 8
Fund types
Value-Added Fund
Committed Capital
USD 130m
Fully deployed
Fee structures
-
Total fee collected: ~ USD 42m
-
Fund IRR (post fee)
Fee during development: 1.25%
pa over deployed capital
Post development fee: 0.3% pa
over market valuation of asset
Disposal fee: 0.5% of transaction
consideration
Carried Interest: 20% of the
excess of minimum IRR
15%
Divested at year 4
Fund strategy
▪ Annual revaluation to
record the gain in value
▪ Seek for divestment
opportunity from the date
of successful acquisition
▪ Clear
fee
structure,
availability on resources
between CLD and CLI
before formation of the
fund
34%
CapitaLand Development Investment Properties
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Key Takeaways for Capital Place
Refinancing of bank loans
Debt terms
Old Debt
New Debt
•
USD 200 mil (USD 10 mil eqv in
VND onshore), 5 yrs tenor
2.25% p.a. + LIBOR-6m; 2%
p.a. + VND COF
•
LTV of 65%
•
•
•
•
•
USD 200 mil (USD 10 mil eqv in
VND onshore), 13 mths tenor
2.25% p.a. + LIBOR-6m; 2.25%
+ VND BLF
Key covenants
•
Security
All assets related to Property including land and building, receivables,
cash, insurance and shares.
Undertaking
Pro-rata by fund investors
LTV of 45%
USD 50 mil cash placement acc
NOI of USD 10 mil
Key Takeaways
▪ SBV Approval
Subjective condition of
lower borrowing
expense due to lower
bank fees
▪ Involvement of multiple
stakeholders
▪ Status of LURC
Related party and offshore property
CapitaLand Development Investment Properties
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2. Asset Classes
discussion
Feliz en Vista, Vietnam
CapitaLand Development Investment Properties
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Vietnam Office Snapshot end 2021
Despite the decrease in vacancy rates, rent price remained stable in both Grades
Hanoi Quick Recap:
• Grade A Market rent to kept constant
despite increases in supply & vacancy
due to COVID.
• Positive signal for market as Hanoi net
absorption for Hanoi to improved to
60,000sqm (2020: -12,000sqm)
Sources: CBRE Quarterly Report end 2021, independent research
Note: *Rent is net, exclusive of service charge and VAT
CapitaLand Development Investment Properties
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SWOT Analysis - Office
Strength
Opportunity
•
•
•
•
•
•
•
Stable stream of recurring income, yield, and rent
increase
Price maker for true Grade A in the CBD setting
Low turnover, resistance to pandemic/ down-trending
market
Low maintenance/ CAPEX compared to Retail and
Lodging business
High EBIT margin
Short lease tail (3-5 years on average)
•
•
•
•
High divestment value if asset is of high quality,
occupancy potential, and good location
CL expertise and reputation will help to attract branded
tenants
Flexible exit: Divestible onshore/ offshore
Divest cap rate lower for bigger and more quality asset
High EIRR potential
Weakness
Threat
•
•
•
•
Plenty of substitutes when it comes to Grade B & C
Difficult to find good PM team to preserve the asset
Difficulty in attracting anchor/ core tenants
•
•
•
New, better budget and quality supplies may prompt
large tenant to move out
Less investment opportunities in CBD area
Acquisition price to rise as market cap rate drop
High ceiling for international Grade A standard
CapitaLand Development Investment Properties
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Vietnam Retail Market Outlook & Trend
Market Outlook:
Retail Market Performance
New Major Openings & Acquisitions
• Market will take some time to adjust
to new normal as vacancy rates may
stay high for another year
• Pandemic related closures also lead
to new opportunities for big players
to enter and re-shape the retail
market
Uniqlo to open its 10th store in HCMC
CONCUNG to extensively expand its network despite
COVID
Sources: CBRE Quarterly Report end 2021, independent research
Note: *Rent is net, exclusive of service charge and VAT
CapitaLand Development Investment Properties
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SWOT Analysis - Retail
Strength
Opportunity
•
•
•
Stable stream of recurring income when market is
stable/ up-trending
Price maker only if situated in the CBD and up-trending
market
•
Retail reshaped after COVID, prompting new lease
opportunities
Can explore oversea retail businesses via CL networks
Weakness
Threat
•
•
•
•
•
•
Low gross profit margin (in the 50% range)
High turnover rate especially during down-trending
market/ COVID period
Long lease tail (5-10 years) or very short lease tail
Require strong leasing network and marketing expertise
High maintenance/ CAPEX compared to Office
Difficult to achieve high occupancy
•
•
•
•
May not attract businesses if one doesn’t have a strong
anchor tenant/ retail management capability
Require flexible incentivization
High barrier to entry: only a handful players control the
retail markets
Online e-commerce competition
Trend may change from time-to-time
CapitaLand Development Investment Properties
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Vietnam SR Market Outlook & Trend
Market Outlook:
SR Market Rent & Occupancy
• Travel restriction depresses SR
occupancy rate to the low 60%.
The lowest in the past 12 years
• 2022 promises to be a brighter
year as travel restriction ease and
border to re-open from March
onwards.
Sources: CBRE Quarterly Report end 2021, independent research, KPMG research
Note: *Rent is net, exclusive of service charge and VAT
CapitaLand Development Investment Properties
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SWOT Analysis – Lodging
Strength
Opportunity
•
•
•
•
•
High gross margins (in the 60% range)
Full independence/ flexibility and control of business
decision in the asset
Experience staff/ management from Ascott
Less substitutes (other Grade A lodging hotel/SR)
Strong loyalty programs opportunities from Ascott
Weakness
Threat
•
•
•
•
•
Price taker
Heavily dependent on international tourism
High initial cost structure
•
PANDEMIC
Susceptible to high-turnover during unfavorable
economic conditions (depression, war, other economic
turn-oil)
Competitive business!
CapitaLand Development Investment Properties
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Conclusion for Commercial Properties
Commercial Properties are indispensable parts to market development. We must strive to:
• Continue to focus on safe and stable segment – Office. Office should make up at least 65% of the commercial
portfolio
• Continue to seek out opportunities in the emerging CBD as office supply will dry out in the future while demand
increase
• Leverage on CapitaLand/Ascott eco-system of strong tenant and asset management capabilities to maximize
commercial leasing capability
• Look to gear-up in-house property management and leasing team to maximize EBIT margin, operation efficiency
and leasing reputation in the long run
CapitaLand Development Investment Properties
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3. Scaling Up Strategy
for Office
D1MENSION, Vietnam
CapitaLand Development Investment Properties
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Acquisition strategy
Option 2: Brownfield
acquisition
Option 1: Greenfield acquisition
Pros:
Pros:
▪
▪
▪
Familiar structure to expedite
Can apply CLV’s design code
in the building (sustainability
components, concept, floor
plan etc.)
Cons:
•
•
Limited availability of projects
that match CLV’s requirement
Most of the project pay
annual LUF
Ready licenses and approval
for development
Cons:
•
•
•
Superstructure
almost
complete, hard to change the
design
and
make
improvement to the design
Most of the project pay
annual LUF
Price include construction
cost
Option 3: Existing building
acquisition/ Turnkey contract
JV structure
Enjoy upside of divestment
Pros:
▪
▪
Approval taken care by
partners
Timeline can be fixed with
guarantee from Vendors
Cons:
•
•
Drafting and finalization of
the Turnkey contract will take
lots of effort
Limited option for renovation
Pros:
▪
▪
Delay the payment of the
land until divestment
Have local partner’s assistant
in working with authorities
Cons:
•
Reduce
the
divestment
profit
CapitaLand Development Investment Properties
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For consideration: Entering in new market segment
Grade B+ Office
Typical Grade B office
specification
Grade B+ office specification
(integrated with Local Grade
A specs)
International Grade A
Good access
Good access
Excellent location
2.65m and above
2.7m
500-1,000 sqm per floor
500-1,000 sqm per floor
Large floor plate, column free
4kN/m2
4.5kN/m2
Minimum 1 lift per 4 floors
Minimum 1 lift per 3 floors
(Heritage)
Minimum 1lifts per 3 floors
Lifts speed
(less than 1.75m/s)
Minimum 1.75m/s
(Heritage can offer 2.5m/s)
4-5m/s
Lighting level
400 lux
400 lux
Office 500 Lux
Lobby 300 Lux
4-star standard
4-star standard
5-star standard with disable
person facilities
Raised floor
No
Yes (optional)
Yes
Sustainability certificate
No
LEED Sliver
Minimum LEED Gold
Location/ Accessibility
Height to ceiling
Floor Plate
Floor loading
Lifts
Toilet
CapitaLand Development Investment Properties
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Office cluster in Hanoi
Grade A office rent
Target grade B+ contract rent from $25psm for location like
developing decentralized location and new CBD area
(Thanh Xuan, Cau Giay and Tay Ho district)
Grade B office rent
CapitaLand Development Investment Properties
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Office cluster in HCMC
Target grade B+ contract rent from $30psm for location like
District 2 and district 4 (same as Phu My Hung tower in
District 7)
CapitaLand Development Investment Properties
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Current Office market
Office relocation creates new trend of
rent improvement for Grade B office.
Vacancy of Grade B is around 10%
We aim for rent that can be as high
as local grade A rent outside of the
CBD area in Hanoi and HCMC
CapitaLand Development Investment Properties
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Office Outlook
Positive outlook for the Office market in both Hanoi and HCMC until 2024
▪ Reduce vacant area across grade
▪ Upward trend for rental rate
▪ Vietnam
retains
the
FDI
destination post pandemic create
opportunity for office area
CapitaLand Development Investment Properties
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Financial consideration for Grade B+
Assumption
Construction cost
$750 psm
Heritage office construction
cost: $600 psm
Rental
(excl. service charge)
$25 psm
Heritage office ~ $20 psm
Grade B+
Typical Grade A
11%
12%
Yield on cost (at stabilized)
Handover condition of
Heritage office is bare
shell (same as retail).
(Capital Place retail
need additional $150
psm to finish)
CapitaLand Development Investment Properties
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Why Grade B+
Seeing new opportunities in sub segment
Opportunity
•
•
•
•
•
•
•
•
No market leader in the sub-category
Still can be considered as Grade A office under local standard
CLV’s experience in design Grade A, Grade B Office, easy to amend the model to add or take out the specs
Expand CapitaLand’s presence and brand name in Vietnam via commercial properties not just residential/ township
developer; flag bearer
Potential to smoothen returns; asset revaluation during development and ownership period & steady NPI upon asset
stabilization
Leverage on CapitaLand eco-system of strong tenant and asset management capabilities
Potential to create a fund or exit into CLI’s existing funds
Potential to tap into on existing or new investor networks such as GIC, MEA, QIA etc. to earn recurring income and
management fee
Proposed Strategy:
•
•
•
Proposed target assets shall be seeded evenly within core districts to reduce self-cannibalization risk when devise leasing
strategy
Easy connectivity to Government Agencies & Depts, CBD, or other residential areas
All assets must be upgradable to achieve sustainable certificate and standard market specification
CapitaLand Development Investment Properties
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Design inspiration for Grade B+ Product
Clean, high quality, and minimal & boutique style office
Style: Clean, high-ceiling, minimal for a modern welcome
Source: 7 Air Street building, London, UK
Spec: Min floor-ceiling height 2.6, optional raised floor 60290mm, minimum LEED silver standard
Amenities: Showers, basic retail needs like coffee,
supermarket,… others
Source: 7 Air Street building, London, UK
Source: 7 Air Street building, London, UK
CapitaLand Development Investment Properties
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4. Exit Strategy for
Office
D1MENSION, Vietnam
CapitaLand Development Investment Properties
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Exit strategy for current and future project
Pros:
▪
▪
Familiar structure to expedite
Most of the current asset has been
set up for this option
Cons:
•
•
Time consuming for multiple
assets
Difficult to tap on the private equity
market or equity investors
Option 3: Divest partial of trust unit
prior to divestment of the fund
Option 2: Divestment into a
commercial fund (3-4 assets)
Option 1: Divestment of single asset
Pros:
Pros:
▪
•
▪
Divest multiple assets at the
same time
Reduce
the
manpower
allocation for divestment
•
Cons:
▪
▪
▪
▪
Complex structure, process to
put the assets in the fund
(valuation of asste, fund set up,
fund
mandate,
investors
sourcing)
Guarantee certain level of yield
on investment to be put in the
fund (EIRR ~12-15%)
CL might need to stay as one
unitholder
More CLI scope than CLD after
divestment
Improve capital utilization at
favorable market condition
(Seed Asset jump in price)
Easier to find co-investor when
investment is secured
Cons:
•
Reduce profit allocation
original
unitholders
divestment of Seed Asset
to
at
CapitaLand Development Investment Properties
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Divestment Strategy
•
If can acquired enough commercial properties -> can exit through an international fund
•
Commercial properties and/or projects will be seeded by opportunities/ projects currently in CapitaLand’s future pipeline project and
must have at least 25+ years remaining at the time of disposal
•
Commercial properties must have its LURC paid upfront in order to obtain off-shore funding
Item
Target
Target Fund Size (Min equity)
Above US$500 million
Target Total Asset Value (PDE)
Above US$800 million
Fund Timeline
2024 – 2026
Investment Period
5-6 years
Investment portfolio
Commercial Developments
And/or Completed Office Buildings
> 70% Office NLA
Holding Period
5 years from acquisition
Geography
CBD/ New CBD area of Hanoi
Product strategy
Primarily Greenfield
Target PIRR
Above Hurdle
Target EIRR
17% – 19%
Target Total Exit Value
US$1.4 billion
CapitaLand Development Investment Properties
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Debt Funding Structure On/off-shore
Investor(s)
CL
100%
(*) CL is Fund
Manager
Fund SPV
Offshore loan
100%
50% asset value
Share collateral
International
bank
100%
SPV1
100%
100%
SPV 2
Onshore loan
10% asset value
Asset collateral
SPV 3
Singapore
SPV 4
Vendor Holding
Companies
Vietnam
Potential Assets
CapitaLand Development Investment Properties
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5. Branding Strategy &
Sustainability Financing
Feliz en Vista, Vietnam
CapitaLand Development Title of Presentation
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SWOT Analysis - Branding strategy
Strength
Opportunity
•
•
•
•
•
High credibility as a successful MNC from Singapore
Well-known brand among real-estate industry and
professionals
Offering premium properties, high services and
impeccable architecture
Achieved recognition as a sustainability-focused
developer
Nearly 80% of property sales are “digitally influenced”,
thus creating opportunities for CapitaLand/ CapitaLand
Development (CLD) to renovate digital ecosystem and
strengthen digital footprint to increase brand awareness
& boost sales
Weakness
Threat
•
•
•
Although the product portfolio is diversified, the quantity
is still low compared to local developers
Fairly low branding awareness among mass Vietnamese
audiences in terms of commercial segment, thus difficult
to reach & acquire new potential customers
•
Strong competition from other developers with more
established awareness to mass consumers
Audiences mostly know CapitaLand/ CLD through
residential properties, not much about office buildings or
retails/malls
CapitaLand Development Investment Properties
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Target consumer profile & Audience insight
They always look far ahead
when making a decision and
aim to achieve the best values
for their investment. An office
space represents the vision
they see for their business and
reflect their strategic mindset
The Envisioners
Age: 25-45
Marital status: Single or Married
Occupation: C-levels or Office
managers at startups or multinational
corporations
“A place I choose for my
office must be a smart
investment: not only does it
release unnecessary stress
and improve my employee’s
morale, but it also elevates
my business’ reputation and
make everyone feel proud to
work in.”
CapitaLand Development Investment Properties
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Our differentiations from other developers
Impeccable
architecture
that makes the
properties stand
out in the
market
One of the few
developers that
redefine quality
living-workingplaying space
in Vietnam
Focus on
sustainability
and wellbeing
of the
communities in
which it
operates
CapitaLand Development Investment Properties
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Key brand concept
Challenges
Audiences mostly
know CapitaLand/
CLD through
residential
properties, not
much about office
buildings or
retails/malls
Considerations in branding
Corporate level
Frequently educate/update the market with
branding materials on the corporate
portfolio
Focus on spreading awareness of CLD’s
credo “Enriching Lives, Uplifting
Communities”
Promote softer, more emotional aspects of
human & sustainability of the company and
the projects it deliver to the market
Project level
Not to mention about the product grade
Not to include CL name in the product
brand name
Consider a different approach in creating
the product brand concept
Key brand concept
‘A BRANDED OFFICE
BUILDING’
Partnership with a prestigious brand
Highlight the USPs of the product
• A flagship component inside the
building that no other competitors
possess in the market
• A building that is both sustainable
and future-proof in terms of
wellbeing and the pandemic
• Office architecture that blends
technology and wellness
• A premium but also functional
workspace environment
CapitaLand Development Investment Properties
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Sustainability Financing
Potential Structures
Framework
SPO / Verification
Proceeds
Green / Sustainability
Bonds
(Offshore fund level)
Framework
needed
Second Party Opinion (SPO)
External Verification
Specific Use
of Proceeds
Green Loans
Framework
optional
If no Framework: External
Verification
Specific Use
of Proceeds
CLG
Experience
Alignment &
Transparency
Strong &
Specific KPIs
If Framework: SPO
▪ Existing CL Group Sustainability framework with Science-based targets and CL Global Sustainability Report (SPO)
▪ Experienced in LEED certification documentation (E.g. Capital Place)
▪ Suitable for commercial properties financing
✓ Specific usage tied to asset or at fund level
▪ Avoid “Green-washing”
CapitaLand Development Investment Properties
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Sustainability Financing
Potential Use of Proceeds and KPI
Eligible Green Projects /
Asset Category
Green Buildings
Eligibility Criteria
•
•
Renewable Energy
•
•
Third party certification of green building standards. (E.g.
LED Gold and above, EDGE, BREEAM)
Renovation or reconstruction that will achieve energy savings
of at least 30% compared to baseline energy performance of
building
KPIs
•
Projects relating to the installation of equipment or associated •
infa to generate renewable energy
Includes any form of clean or renewable energy installation
•
Energy Efficiency
•
Adopt smart technologies or systems for optimizing energy
management in new and existing buildings (E.g. LED lighting
or replacing air-conditioning chiller or lift systems)
Waste Management
•
Improved waste management by offering multiple possibilities
to recycle and dispose of waste
•
•
No. of Green Buildings
(fund)
kWh of power generated
from renewable energy
Tonnes of CO2
equivalent avoided
Energy saved per year
Energy intensity
reduction (kWh / sqm)
CapitaLand Development Investment Properties
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Sustainability Financing
Potential Use of Proceeds and KPI
Eligible Green
Projects / Asset
Category
Sustainable Water
Management
Eligibility Criteria
•
•
Environmentally
Sustainable mgmt. of
Living Natural
Resources & Land
Use
•
•
Water saving features to reduce water consumption / usage (E.g.
automatic tap water sensors)
Installation of water recycling equipment, such as grey water
tanks
KPIs
•
•
Water saved per year
Water intensity (m3 /
sqm)
Installation of green roof gardens
Facility and infra new build/upgrades that contribute to the
protection of living natural resources
CapitaLand Development Investment Properties
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The End
d’Edge Thao Dien, Vietnam