Property giant CapitaLand’s formula for achieving sustainable growth and profitability in the next decade lies in doing more in the markets it already has a presence in, before investing in new cities. Its latest ‘3+3+2’ strategic focus denotes the company’s three core markets of Singapore, China and Australia; its three secondary markets of Vietnam, Malaysia and Europe; and two opportunistic markets in Japan and India.
More than a decade after it was created through the merger of Pidemco Land and DBS Land in 2000, CapitaLand manages total real estate assets of SGD 55bn ($46bn) – making it south-east Asia’s largest property group. This is a sizable expansion from the SGD 27bn ($22.5bn) assets managed at the point of inception. The combined market value of the group’s nine listed companies, including six real estate investment trusts (REITs), stood at SGD 28.4bn ($24.8bn) at the end of September 2011. It is a global real estate player, operating in more than 110 cities in more than 20 countries.
In August 2011, the developer announced a net profit of SGD 500.5m ($417.1m) for 1H 2011, a 35 percent increase year on year, with a total revenue of SGD 1.4 bn ($1.2 bn). Over the past five years, it has delivered net profits totalling more than SGD 7.4bn ($6.2 bn). Having looked at what had worked successfully, the ‘3+3+2’ strategy will sharpen management’s focus to deliver higher returns in these markets over the next decade.
In all the three core markets, the group already has a strong presence, which includes homes, offices, shopping malls, serviced residences and integrated mixed-use developments.
With a net debt equity of 0.2 times, CapitaLand has so far committed more than SGD 10bn ($8.3bn) of new investments in both Singapore and China markets over the past 18 months. In fact, the developer expects the total investment in 2011 to exceed its initial target of SGD 5-6bn ($4-5 bn).
In Singapore, CapitaLand aims to become one of the top three players over the next three to five years, targetting a 15 percent share of total units sold in the residential market.
There is currently a total market annual demand of 10,000 to 15,000 private residential units in Singapore according to Urban Re- development Authority of Singapore (URA) 2Q2011 data. This year, CapitaLand is on track to launch 1,700 apartments in Singapore, with 2,700 homes in the pipeline for the next two to three years. Some of its new launches include d’Leedon, The Interlace and Urban Resort Condominium, and a 583-unit residential project at Bedok Town Centre subject to regulatory approval.
In the retail space, the group is Singapore’s leading shopping mall owner, developer and manager with 20 shopping malls (four under development) under its belt. From the iconic ION Orchard, Plaza Singapura and Raffles City Singapore along the prime shopping belt, to the highly successful Junction 8, Tampines Mall and IMM Building in the suburbs, CapitaLand’s malls cater to the full range of retail needs.
In China, the group holds an upbeat view on the long-term prospects of the market. CapitaLand aims to have about 45 percent of its total assets in the mainland over the longer term, up from 36 percent or SGD 10.5bn ($8.7 bn) at its current level.
In the residential space, it is keeping its target of launching 4,000 units for sale by the end of 2011, with 1,700 units launched in the first six months of the year. It has a pipeline of 22,000 residential units in China to sustain its development activities over the next four-to-five years. Despite property cooling measures, prices have edged up in the first half of this year with the average selling price at RMB 16,000 per sq m, up from RMB 15,000 per sq m in the corresponding period last year. Projects such as Dolce Vita in Guangzhou, The Loft Phase in Chengdu, The Pinnacle in Shanghai and The Metropolis in Kunshan are achieving good sales.
CapitaLand views the government cooling measures to stabilise the property market in China positively, as the company is a long-term rather than a speculative player. In 2010, it announced its move to develop value housing in China so as to cater to Chinese citizens who have been priced out of the non-subsidised housing market. The growth of this business was accelerated when it acquired a 40 percent stake in the former building and development division of the Singapore Housing and Development Board, Surbana, in April 2011. Surbana holds stakes in four townships in the Chinese cities of Xi’an, Shenyang, Wuxi and Chengdu, with a total housing inventory of about 41,000 homes to be developed for sale. With this acquisition, CapitaLand’s total residential pipeline now stands at more than 64,000 units in China.
In the retail sector, CapitaLand is the leading retail mall developer-cum-operator, owning and managing 54 malls presently. This includes seven Raffles City brand developments in its portfolio across China. It aims to grow its retail portfolio to 100 malls in the medium term by entrenching its presence in key gateway cities of Shanghai, Beijing and Chengdu and expanding in other growth cities of China. The favourable retail prospects in China continue to be underpinned by the rapid urbanisation trend, rising consumption spending and fast growing economic development.
In Australia, CapitaLand’s businesses are undertaken through its listed 59 percent-owned subsidiary, Australand. The latter has a market capitalisation of some AUD 1.3bn ($1.2 bn) as of 19 August 2011, with operations in Sydney, Melbourne, South East Queensland, Adelaide and Perth. They include development of residential land, housing and apartments, development and investment in income-producing commercial and industrial properties, and property management. As of the end of June 2011, Australand’s Investment Property division had a total portfolio value of AUD 2.1bn ($2.0bn) with 69 properties, including four properties under development, with a total lettable area of 1.1 million sq m. The industrial portfolio comprised 49 properties with a total lettable area of 878,629 sq m, with an average lease term of 6.1 years (by income) and occupancy rate of 99.4 percent.
Malaysia, Vietnam and Europe
The ‘3+3+2’ strategy recognises Malaysia, Vietnam and Europe as its secondary markets while Japan and India are deemed as opportunistic markets. Besides building homes, CapitaLand Group manages five malls with a total gross floor area of 4.7m sq ft in Malaysia.
In Vietnam, its portfolio has more than 4,000 homes across four prime residential projects including The Vista and Beau Rivage in Ho Chi Minh City and Mulberry Lane in Hanoi.
For now, CapitaLand’s presence across Europe is via its footprint of serviced apartments which comes under the Group’s serviced residences unit – The Ascott Limited. Ascott plans to deploy SGD 1bn ($800m) in capital for investments in Asia and Europe in 2011, aiming to own and manage 40,000 serviced residence units globally by 2015.
Japan and India
In Japan, CapitaLand’s focus is on achieving yield investment. Besides operating seven malls in Japan via a private equity fund, it has a 20 percent share in a 298-unit residential, office and retail development Shinjuku Front Square which is scheduled for completion next year. In India, CapitaLand plans to operate nine malls (seven under development).
A complete value chain
CapitaLand offers a complete real estate value chain with leadership positions in being an investor, developer, operator, and asset manager in residential homes, shopping malls, offices, serviced residence and mixed development. At each position, it has created stable fee income flows and strong development profits. This is done through its proven capital recycling model, which involves building or buying quality assets and offering them to the REITs or unlisted private equity funds upon achieving optimal income flow. The capital raised is then used in its expansion and the cycle is repeated.
From its humble beginnings as a Singapore-centric developer, CapitaLand is now the leading foreign real estate developer in China, the largest shopping mall developer, owner and manager in Asia, the world’s largest international serviced residence owner-operator and the leading Asia-based real estate fund and REIT manager. Over the past decade, it has built more than 22,000 homes in China, managed more than 94 shopping malls across Asia, operated more than 27,000 serviced apartments worldwide and provided real estate financial services including managing seventeen private equity funds and six REITs.
Despite its diverse operations, it has kept its primary focus of operating in the real estate space, so that it can leverage fully on its competencies in the area. At the same time, it consciously balances its business with a good mix between real estate sectors; between trading income and fixed-fee income; between developed and emerging countries; a mix of its talent pool among the different business units and successfully bridging the real estate financial requirements with efficient capital markets management.
Looking ahead, CapitaLand will continue to focus on quality performances and building its people so as to produce profitable and sustainable businesses. In doing so, it aims to bring sustainable value add to its shareholders.
Raffles City Brand
CapitaLand’s success with mixed developments under its Raffles City Brand is a testimony on how it leverages on its various competencies in investment management, development and operational capabilities.
A Raffles City project is an integrated development comprising residential, serviced residences, retail, offices and entertainment facilities. Another characteristic is its strategic location within business and cultural districts and with close proximity to central transportation hubs. One other factor is the innovative design by renowned architects.
Modelled on the first Raffles City development in Singapore, the formula has been replicated in Shanghai and Beijing. This will be followed by similar developments in Chengdu, Hangzhou, Ningbo, Shenzhen and Changning in the next few years.
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