Mapletree grows 'extra wing' outside Asia

S'pore property firm has invested nearly $2b recently in markets like US, Australia and UK

Mapletree CEO Hiew Yong Khong - seen here with a model of the Alexandra Precinct, home to Mapletree Business City I, the upcoming Mapletree Business City II and PSA Building - said that while Asia "has proven to be able to generate returns", Mapletre
Mapletree CEO Hiew Yoon Khong - seen here with a model of the Alexandra Precinct, home to Mapletree Business City I, the upcoming Mapletree Business City II and PSA Building - said that while Asia "has proven to be able to generate returns", Mapletree needs to explore other investment markets.ST PHOTO: MARK CHEONG
An artist’s impression of Phase 4 of Nanhai Business City, a 42ha mixed-use project that Mapletree is developing. When completed, the development will comprise residential towers and commercial components such as the VivoCity Nanhai mall and an internatio
An artist’s impression of Phase 4 of Nanhai Business City, a 42ha mixed-use project that Mapletree is developing. When completed, the development will comprise residential towers and commercial components such as the VivoCity Nanhai mall and an international education hub.PHOTO: MAPLETREE

Many companies here are searching for growth in overseas markets, given that Singapore's economy is taking a breather.

But Mapletree Investments has stolen a march on many of them. Already in the past year and a half, it has shelled out close to $2 billion on investments in the mature markets of the United States, Australia and Britain.

Mapletree, one of Singapore's largest property companies, last year took the significant decision to diversify out of Singapore, China and the Asian market and into these so-called new markets.

Mapletree chief executive Hiew Yoon Khong explained: "The challenge for us, specifically, is balancing growth and maintaining profitability. The Singapore market is relatively small and the necessity to look at the external investment market is always there. While Asia has proven to be able to generate returns, Singapore, as an open economy, is correlated with sizeable economies and we may need an extra wing... outside of Asia."

  • About Mapletree

  • Mapletree Investments is a real estate development, investment and capital management company.

    It has $28.4 billion worth of assets under management as at March 31. Properties span retail, office, logistics, industrial, residential, corporate housing/serviced apartments, and mixed-use properties. Well-known ones include Mapletree Business City I, VivoCity, and Festival Walk in Hong Kong.

    Mapletree manages four Singapore-listed real estate investment trusts - Mapletree Logistics Trust, Mapletree Commercial Trust, Mapletree Industrial Trust and Mapletree Greater China Commercial Trust - as well as six private real estate funds.

The wholly owned Temasek Holdings unit, probably better known at home for its business parks and warehouses, signed an alliance with US player Oakwood to buy and develop corporate lodging and serviced apartments in the US, Europe and Asia in April last year.

Mapletree now owns serviced apartments in places ranging from Dallas, Texas, to California and other parts of the US. These are managed under the Oakwood brand.

Also included in the near $2 billion tally is the Diageo Global Headquarters in London as well as offices in Manchester, Bristol and Aberdeen. In Australia, Mapletree has also snapped up offices in Brisbane, Sydney and Perth.

These moves make sense, given that the US economy is staging a recovery and the euro zone is growing - at 0.3 per cent in the third quarter.

Even Australia, which is struggling with the commodity slump, is marking its 24th straight year of annual growth. Mr Hiew noted that mining makes up less than 10 per cent of Australia's economic output. The financial and insurance, professional and technical sectors, which usually occupy offices, are seeing improvement.

But with Mapletree aiming to deliver consistently high returns - targeting between 10 and 15 per cent for the five years to 2019 - it will take more than just a geographic expansion.

Its deal with Oakwood also saw it venture into a new area of corporate lodging, a concept similar to serviced apartments.

Other sectors are also being explored. One area that Mapletree could expand into is student accommodation. Mr Hiew said: "Student accommodation is a big business and relatively low risk. Essentially, it is about people who stay a long time."

Potential for Mapletree in education, healthcare

This would tie in nicely with the strategy of investing in properties offering long-term leases as this means that rental levels are locked in for longer. Student accommodation offers good yields and is able to complement the corporate lodging portfolio in terms of yield profile.

Working with education players is another area that offers potential.

Mapletree is developing a large-scale residential project in Nanhai, China, with more than 5,000 homes. There will also be retail space and an international education hub, of which a major tenant will be Singapore's EtonHouse International Education Group, which will run a full-fledged international school taking in children aged two to 12 years.

Where it comes to partnering education institutions to set up centres overseas, Mr Hiew noted that China and Vietnam are two countries where there are chances to scale up.

Another area of growth would be hospitals and old folks' homes. China is slowly opening up its healthcare sector and this could prove advantageous for Mapletree. "We are doing a very small-scale medical centre in Ningbo, and this will be a prototype… This medical centre and our education hub in Nanhai are some of the experiments that we are conducting for our knowledge, to learn and to build our experience," added Mr Hiew. While China is slowing, he is still confident of the market because it is scalable.

One area that Mapletree is unlikely to venture into is hotels. Mr Hiew is unconvinced of their investment merits as their yields will not meet the targeted returns, he said, which is an example of the disciplined approach that Mapletree takes in its investments.

And with all these acquisitions made overseas, it is possible that in another three years or so, Mapletree could launch another real estate investment trust (Reit) to add to its present slate of four. This new Reit could comprise its corporate housing assets from its Oakwood investment.

But given Mapletree's focus on markets overseas, what are the prospects for Singapore, which accounts for about 49 per cent of the $28.4 billion worth of assets under management as at March 31?

For a start, with around 114 developments under its belt here, a shortage of labour and high manpower costs are critical issues. Mr Hiew said: "What's good for us is that (issues like these) force us to review our service specifications in a way to try to look for more productivity. Our property management contracts are specified on an outcome basis, not by labour input - that is, give us a price for supplying six guards a day but on the basis of our property being inspected on a daily basis and others on a weekly basis."

He added: " It used to be that we had contracts that, for example, ask service providers to give us a price for supplying six guards a day, but we don't use that as a benchmark anymore. Instead we tell service providers that we want a certain aspect of our property inspected and reviewed on a daily basis, and others on a weekly basis. And then we let the service provider decide how they want to deploy their manpower in order to meet the specifications.... This has allowed us to contain the cost escalation quite effectively."

Technology can also help. For example, more security cameras are deployed rather than having more physical inspections.

The benefit of having a larger portfolio, said Mr Hiew, is that the services can be provided across clusters with one guard inspecting three or four in the same vicinity rather than just focusing on one building.

But it is not just about cost-cutting. There are trends in Singapore that will benefit Mapletree.

Mr Hiew pointed to the trend of decentralisation, with Jurong and Woodlands being earmarked as regional hubs. This should create demand for business parks.

With more pharmaceutical and software firms coming into Singapore, Mapletree has the advantage of being able to offer larger floor plates which give tenants freedom to configure their working spaces.

Under Mr Hiew, Mapletree was an early player in making a business park look less like a shabby afterthought for small companies and as smart-looking as an office. That is probably why it has managed to snare prospective tenants such as Google from the Central Business District for its upcoming Mapletree Business City II which, when completed, will be one of the largest business parks in Singapore.

Providing top-notch space in business parks is something that other developers have started to emulate, but Mr Hiew said that Mapletree will still focus on this: "Providing high-quality space makes business sense because you can attract higher-quality tenants who stay longer."

And despite slowing growth, in the long run, Mr Hiew is confident that Singapore will continue to do well. "Fundamentally, the real estate business is about housing the economy, accommodating the economy. Whether the real estate sector does well or not, is driven by the health of the economy.

"If you examine the countries, the real estate sector mimics the consistency of macroeconomic growth. That implies, going forward for our industry, it's about economic prospects as a whole."

•This is an occasional series about how companies deal with the challenges of slowing growth, technology disruption and globalisation.

An earlier version of this article mentioned Mapletree chief executive Hiew Yoon Khong as Hiew Yong Khong. This has been corrected. Mention of Eton has also been changed to EtonHouse International Education Group. 

A version of this article appeared in the print edition of The Straits Times on November 30, 2015, with the headline 'Mapletree grows 'extra wing' outside Asia'. Subscribe