Mapletree’s growing worldwide portfolio

Could you give us a background about Mapletree’s relationship with the US market?

2014 marked our first foray into the United States (US) market via a joint venture with Oakwood Worldwide – a long-standing provider of quality corporate housing solutions in the US, Asia Pacific, and Europe. Upon the onset of this joint venture, Mapletree acquired nine corporate housing and serviced apartment assets in the US prior to consolidating a 100% interest in Oakwood in February 2017. The Group plans to further extend its acquisition and development of corporate housing and serviced apartment assets in those regions where Oakwood has a presence. As a pioneer in the corporate housing sector with a global portfolio of 60 Oakwood-branded properties, we believe that Mapletree’s real estate knowledge, expertise and global presence will enable the brand to grow even stronger.

With burgeoning demand by international, particularly Asian students, for US tertiary education, underpinning strong growth in university enrolment rates across the US, we embarked on our first acquisition of a US purpose-built student accommodation portfolio in November 2016. Thereafter, we went on to acquire 19 student accommodation properties which are all located within close proximity to leading universities and enjoyed strong occupancy rates. At present, we have more than 13,000 beds in our US student accommodation portfolio.

Another sector that we are focusing both globally, and now in the US, is logistics. In 2018, Mapletree completed the acquisition of certain logistics assets in the US and aim to do more.  The other important aspect of our business is building tenant relationships with US corporations. Essentially, we would like to be the landlord of choice for US corporations that have occupier requirements in Asia.

For example, we have many US-based corporations including Google and Oracle Corporation as our office tenants in Mapletree Business City in Singapore. In the logistics sector Amazon is our tenant at Mapletree Logistics Hub in Singapore and in our facility in Odawara, one of the largest warehouse facilities in Japan. In our data centre business, we have secured Equinix as a tenant in a build-to-suit data centre in Singapore. We have many on-going discussions with various US-based companies about how we can use our network in Asia to help host and grow their businesses.

Can you tell us more about the relationship you have nurtured with American companies?

Singapore has a long history of hosting US-based multi-national corporations. Given our extensive real estate holdings across Asia, we are extending the relationships that we  have originated in Singapore across Asia as and when our tenants have real estate requirements.

In parallel, the business model we have configured enables us to be an intermediary, deploying capital into US real estate sectors that resonate strongly with the Asian based capital that we manage. As such, we create a bridge for US corporations to expand their business presence in Asia, whilst enabling Asian capital to gain investment exposure to the US.

We have since expanded our investment management capabilities outside of Asia and now manage capital that originates from Canada, the Middle East and Europe into the real estate funds that we have established. Although we would like to include US capital also, as we are a 100% owned subsidiary of Temasek Holdings, the Singapore Government Investment arm, certain restrictions apply.

How do you see Asian real estate markets evolving over coming years and how will it compare to other regions?

The Southeast Asian real estate markets are not homogenous and as such there isn’t a catch-all description that I can give about future prospects. The real estate industry is a proxy for broader economic activity whether in Asia, Europe, or the US. In that sense, we assess each Asian economy and their real estate markets differently. For instance, China continues to be robust, whilst Vietnam has strong potential over the longer term. Malaysia, Indonesia, India and the Philippines have from time to time certain challenges – be it economic, financial or in some cases, political. Overall however, Asia has and will continue to remain a core focus of the Mapletree Group.

In 2014, we embarked on a global strategy as we felt that if we confined our business to Asia, we might not be able to scale it in the way we wanted. Hence, we decided to explore Europe, the US and Australia as new markets. At that time, when we assessed each markets macroeconomic outlook, we were quite positive about the forward growth prospects for both the US economy and the US real estate markets – an assessment that still stands. Our outlook for our US investment portfolio remains positive, whether it is in our student housing, logistics, data centre, corporate housing or commercial verticals.

Coming back to your question about Asia, when ranking each county according to our assessment of their economic health and forward growth potential, we conclude that the two markets we are most optimistic about are China and Vietnam.

When comparing Mapletree to other real estate companies, its business model appears quite comprehensive – from developing and investing in physical real estate to creating public and private vehicles from which you manage third party capital. There is a lot of debate around creating shareholder value. How does your business model provide competitive advantages versus your peers?

We believe there is a clear distinction between the more traditional Asian real estate developers and the more non-traditional. Traditional real estate developers are very capable in the physical real estate markets in which they operate and have a comprehensive range of real estate skills and capabilities. They are however not as well versed in capital management, fund management and the capital markets. Traditional real estate developers tend to build real estate for long-term ownership, with family run companies using real estate as a store of wealth that can be passed down through generations – this is particularly the case in land constrained countries such as Hong Kong and Singapore.

We have configured ourselves an almost hybrid business mode in which we possess the full range of physical real estate skills, complemented by expertise in capital management and the capital markets. For this business model to succeed we need to have the requisite physical real estate knowledge to ensure that we can develop, asset enhance and invest in the right type and right quality of real estate so as to maximize its ability to perform well financially. The financial skill sets that we have in-house ensure that we manage our capital efficiently and are capable of syndicating our investment ideas to third party investors.

The creation of public and private vehicles that are used to syndicate the physical real estate that we have developed or acquired to third party investors encapsulates our business model. We align ourselves closely to our investors in two ways – firstly by being the largest single investor in each of our syndications and secondly, by ensuring that our fund management fees reward us principally on performance.

With regard to the influence of your US business - being Oakwood corporate housing, logistics, data centres and purpose built student accommodation - what role does sector diversification play within your growth plans?

The objective of sector diversification across the US is to allow us to gain broad based exposure to the world’s largest, most vibrant economy at a cyclical inflexion point that will deliver strong forward economic growth. To enable our third party investors to capture this period of strong economic growth, our intention is to deploy capital and recycle it as quickly as we can.

A good example of this is our US student accommodation portfolio which we began to acquire in 2016 and early 2017. Once we had aggregated sufficient scale, we quickly syndicated it into a private fund in which we raised US$535m of equity. This fund, which we call Mapletree Global Student Accommodation Private Trust, comprises 14,273 beds across 22 cities in the UK and the US with a total value of US$1.3b.

It was the first trust in Singapore that focused on the student accommodation sector and was very well received by investors, particularly high-net-worth Asian investors, many of whom had experience sending their children to tertiary institutions in the UK or the US. On the back of this successful syndication we have continued to recycle capital into the sector, including commencing our first student housing development in Philadelphia, with an intention to syndicate a second fund in 2019/2020. As long as we can deploy our own capital into this sector, whilst ensuring that Asian investor interest in international student housing is maintained - we will continue this “virtuous circle of capital recycling”.

In a similar vein, we are now exploring the potential of syndicating a global logistics fund on the back of the logistics assets we acquired in the US this year. Upon syndication of this global logistics portfolio we will replenish our balance sheet enabling us to venture back into the market and acquire more logistics assets in 2019 and beyond.

Your non-Asian assets comprised 14% of the S$39.5 billion of assets under management (“AUM”) in 2017. It is now 21% of the S$46.3 billion AUM currently. Is this trend likely to continue?

Historically we have doubled our AUM every five years, which on average reflects 15% AUM growth per annum. Our US business has grown at very strong rates of growth from a zero base in 2014 versus our core Asian business which has been very large for many years. We would expect that the rates-per-annum growth of our US business to slow as the AUM base becomes larger. As such, over time our US business growth is likely to moderate more in line with the global business at 15% per annum.

Mapletree has completed many “build-to-suit” developments across Asia and is highly regarded for its flexibility and tailor-made solutions for end-users. How does this skill set help position you in the market place compared to other players?

The skill set that we have, especially the more technical skills related to real estate, are not really unique to us. Our competitors also have these skills. I guess our point of difference is the way in which we combine our skills into a package that third party end-users believe in and commit to. A good example of this was the build-to-suit development we completed for Hewlett-Packard (“HP”) in Singapore in 2017.

In this case, we introduced one of our older Singapore industrial properties to HP as we believed it would meet their locational objectives. We then augmented this with a design proposal which resonated very strongly with them. The package of right location, targeted design and confidence that Mapletree would deliver, resulted in HP accepting our proposal. We are also very active in the sale and leaseback market, particularly with owners who want the financial certainty that we can provide as a purchaser, alongside the confidence that we will be a good long-term landlord.

In addition, we work very hard to ensure that we meet the accommodation objectives of our tenants, who we consider our ultimate customers. I think it is important to harness win-win outcomes between our tenants and ourselves. In the case of Google, we incorporated sustainable design, such as environmentally friendly building materials and minimized non-renewable energy consumption, to improve building performance and efficiencies. Again, the package of right location, targeted design and confidence that Mapletree would deliver resulted in Google electing Mapletree Business City in Singapore as their Asia-Pacific headquarters, beating competing bidders in Tokyo and Sydney.

As we regard our tenants as our ultimate customers, it is our over-arching responsibility to understand what our tenants’ objectives are; and to deliver on these objectives in the best manner possible. This is a core part of our DNA and what we have been doing for many years in Singapore, across Asia and now the key cities we operate.

What would you say to a US company who is trying to select a local partner to help grow their business across Southeast Asia?

I don’t think people should generalize about Asia, nor Southeast Asia for that matter, as the region is a melting pot of very different economies and cultures with unique dynamics. One therefore needs to analyze and assess each country on a standalone basis.

Each Asian country has their own embedded strengths and weaknesses, which can help generate opportunities but at times provide threats. The demographic patterns of each Asian country are also very different, with countries such as Vietnam having a young population and growing middle class, relative to say, Japan's silver population. Therefore, it is important that US companies appreciate the diversity of Southeast Asia and do not to apply a “one-product fits all-markets” approach.

How does Mapletree think about talent management and fostering diversity across its workforce?

Mapletree currently employs around 3,500 people across the world, including our US colleagues in our Oakwood business which has approximately 1,300 people. In fact, Mapletree now has more US citizens in our employment than Singapore citizens. As such, with more than 20 nationalities working for us, diversity is an incredibly important part of our business, particularly as we scale into new countries. In that regard, our philosophy is to localize talent when we enter new countries, rather than trying to long-distance manage from our Singapore Headquarters. We are also very sensitive to the local environment, customs and business practices in the markets in which we operate.