Singapore is as famous for its strict laws as it is for its enviable wealth. If you want to avoid making a faux pas in the real estate sector, just don’t confuse the country’s sovereign wealth fund GIC with the state-backed real estate investment management firm Mapletree.
“People ask us about GIC and the relationship but we don’t look at them,” says regional chief executive for Europe and USA, Michael Smith, in his first UK interview in Mapletree’s UK headquarters at APAM’s 80 Hammersmith Road, W14.
“GIC is the sovereign wealth fund of Singapore tasked with managing the country’s foreign reserves. So they have a very broad remit where they invest in fixed-income instruments or the equity market or real estate.
“We are not a sovereign wealth fund, we have never claimed to be a sovereign wealth fund. We are a real estate developer, investor and capital manager. We stick to our tasks and we go off and do it.”
The two investors are independently run and will happily compete on deals, says Smith. Good to know if you have the opportunity to meet the investor, which is seeking to further establish its UK brand and presence and is targeting the UK and Europe for a potential major investment play into the serviced apartment and data centre sectors.
New year, new acquisitions
Since first entering the market in 2015, the property arm of Singapore’s state investment fund Temasek has quietly amassed a S$2.5bn (£1.4bn) UK property portfolio of regional offices and student housing.
Last year, Mapletree acquired US-based Oakwood Worldwide, the world’s largest provider of corporate housing and serviced apartments. The Oakwood business has 1,359 employees in the US and some presence in the UK, with a London office at 40 Clifton Street, EC2. “We’ve got more Americans now in Mapletree than we have Singaporeans on the back of that acquisition, but that’s a business that we would love to bring more into Europe and the UK,” says Smith, who typically alternates working weeks between New York and London.
“It is a global provider of corporate housing. It’s a 50-year-old business so it has got very good connectivity with the US corporate America. As US corporate America expands, it’s a great brand to expand as well.”
“I was in Dublin earlier this week – there doesn’t seem to be a lot of corporate housing or sort of serviced apartment-type offerings and you’ve got a Google and Facebook and everyone else setting up shop there. So I think that sort of opportunity is real for us.”
Data centres are also among new sectors in Europe where Mapletree hopes to be acquisitive. In October, Mapletree Investments entered into a joint venture with Mapletree Industrial Trust to buy 14 data centres in the US from Carter Validus Mission Critical REIT for S$1bn (£570m).
“As a thematic for us, that sort of distribution, e-commerce, as the world becomes more technified, we think there is a good business in owning the bricks and mortar of data centres,” Smith says. “That is a more difficult, more fragmentally owned market, but it is a great market for us so we are very focused on trying to grow that as well.”
Smith, who joined Mapletree in 2017 after 10 years at Goldman Sachs heading the South East Asia investment banking business as well as its Asia Pacific real estate business, says Mapletree aspires to grow its UK portfolio, which comprises business parks, offices and student housing in regional cities.
The company also has representatives in Manchester and Green Park in Reading, the 1.4m sq ft business park it acquired from Oxford Properties in 2016 for £563m.
The attraction of the UK is its alignment of opportunities with the company’s five-year plan, which runs until March 2019 and prioritises “quality income-producing assets with long weighted average leases to expiry which are anchored by a strong tenant base, to give us stable and growing yields.”
In Europe, the only other country where it is currently active is Germany.
“We have been looking [at opportunities in other European countries] and we are not averse to any particular country, it’s just what meets our business plan and our investment requirements,” says Smith.
Mapletree demonstrated its firepower last year when it made the shortlist for the €12.3bn (£10.5bn) sale of Blackstone’s European logistics business Logicor. It missed out on Logicor to China Investment Corporation, the Chinese sovereign wealth fund. But Smith says it remains in the market for a mega logistics platform.
“I don’t think we will be buying £5m warehouses in Milton Keynes. That’s probably not going to be our business. We would want to have a more sizeable business to augment what we have already got in Asia.”
Mapletree develops its own warehouses in China and currently owns more than 150 logistics assets across Asia Pacific. A European logistics presence is integral to its strategy of attracting loyal custom from major occupiers such as Amazon through a global portfolio.
“If we were to serve an Amazon in Asia and we want to serve them in the US and Europe, then we need to have exposure here,” he says.
Another Logicor-sized opportunity is unlikely to surface in the near future, but Smith says Mapletree could look to build a similar platform organically by acquiring larger portfolios and managing them.
“To have 624 warehouses across 17 countries is a unique opportunity. So it may not be opportunities of that size, but the overarching thematics around the sector are still very encouraging with e-commerce and everything else that’s happening in the world.
“Of all the thematics that Mapletree is involved in, that is probably the one that resonates with us and is associated with us the most. So we very much believe in the sector and think that over time there will be a lot more opportunities for people like us to get involved.”
Student housing brand
Another area of expected growth in the UK is in student housing, which Mapletree entered in the UK in 2016 with the £417m acquisition of the 5,500-bed Ardent portfolio of 25 buildings in cities including London, Edinburgh and Manchester.
Mapletree believes the UK will continue to be a key market for Asian students studying abroad and it hopes to attract with its Mapletree-branded properties.
“We are still very optimistic, very keen on this market,” says Smith. “There are still some of the best universities in the world [in the UK] if you look at all the university rankings…There are 1m mainland students who are being educated now apparently in Europe and the US, so our opportunity is to build a brand in Asia that is associated with quality universities and quality student accommodation.”
His biggest concern about the UK market is the availability of end product.
“It’s a much smaller market than the US, and there is a lot of capital chasing limited opportunities,” Smith says. “That has brought prices up and cap rates down, so it would have been better to be a buyer three years ago.”
Mapletree’s 12,000-bed UK portolio is managed by operator Home for Students. However, Smith says there could be an opportunity for Mapletree to take on the operational aspect of the business if its portfolio achieves an appropriate scale.
Up until March this year, Mapletree owned 100% of its portfolio, but it has since reduced the ownership of its assets via syndication to 33%. However, it continues to manage the assets. This is a typical level of syndication for the company.
Mapletree’s business model as a capital manager is to reduce its ownership of assets via syndication rather than exit completely. “That is likely to continue,” says Smith. “We use our balance sheet to buy assets like the commercial portfolio of student housing and then we will syndicate that into a fund.”
Regions versus London
Smith attributes Mapletree’s appetite for UK regional offices to expertise and yield. The company’s global HQ in Singapore is at Mapletree Business City, a 1.7m sq ft out-of-town office complex that has attracted tenants such as Google and Deutsche Bank.
“We understand that business very well,” says Smith. “We don’t own skyscrapers, [or] equivalents in the heart of Singapore, and I guess it is that sort of mentality.”
As part of its strategy of partially exiting assets via syndication, Mapletree is yield sensitive.
“For us to buy a 3% yield in property with an expectation to syndicate it to people who want yield, it’s going to be a challenge for us,” Smith says.
“So the regional markets that are generally more higher-yielding, they have a yield pick-up versus central London and still very good fundamentals.” He cites Mapletree’s acquisition of Green Park, Reading, as a prime example of a property that demonstrates the company’s interests.
“It’s got a great register of tenants, it’s in a great location with the infrastructure capability that’s being built out across greater London, plus it gives us a yield pick-up that we wouldn’t otherwise get in the city.”
Mapletree continues to look at regional office opportunities. “Anything that becomes available of scale in particular normally gets shown to us, so if it meets our requirements we will keep looking,” Smith says.
Could 2018 be a good time for Mapletree to exit some of its regional assets? “Possibly,” says Smith. “We are not under any time pressure but if we thought we had the right scale and the right offering we would consider it. There’s nothing specifically planned around it yet, but it’s a good scale, it’s £940m of offices, so that’s something we could do.”
Having doubled its assets under management for every five-year plan it has had since it formed in 2000, one thing to be sure of is Mapletree’s continued presence in the UK. Brexit and political uncertainty are not a major concern. Smith thinks the sectors it is in will be resistant to external shocks. “Fortunate or otherwise, we think are verticals are pretty – not totally economic and political proof – but they are at least resilient.”
What is Mapletree?
Singapore-headquartered Mapletree is a property development, investment and capital management company.
It is 100% owned by Temasek, the Singapore government’s investment arm. However, it has an independent board of directors, which approves its five-year plans without input from Temasek.
It is also independent from Singapore’s $350bn sovereign wealth fund GIC and has been known to compete on deals.
In some instances, Mapletree’s cost of capital is less and it can go after deals more aggressively as it has lower return targets than GIC.
“We are quite separate organisations and if we are interested in something and they are interested in something then we may look at it separately,” Smith says.
As at 31 March 2017, Mapletree owned and managed S$39.5bn (£21.8bn) of office, retail, logistics, industrial, residential, corporate housing/serviced apartment and student accommodation properties. Its UK portfolio totals S$2.5bn.
Mapletree manages four Singapore-listed real estate investment trusts and six private real estate funds that hold a diverse portfolio of assets in Asia Pacific, the UK and the US.
The group also has a network of offices in Singapore, Australia, China, Hong Kong SAR, India, Japan, Malaysia, South Korea, the UK, the US and Vietnam.