A hybrid model for growing a global real estate behemoth

Going global is often part of a burgeoning business’ roadmap for scaling up. But while international expansion into new markets can deliver exponential returns, it could also unleash a plethora of complex new challenges – a scenario that is all the more heightened in the cutthroat realm of real estate.

Mapletree Investments is a real estate and capital management company headquartered in Singapore, and one of the country's largest property companies. Founded in 2001 by the Port Authority of Singapore from a pool of its non-core assets, Mapletree held non-port real estate such as harbourfront properties. By 2015, the company had to make key decisions: if it should extend its reach geographically outside Asia, and consider entering new asset classes like student accommodation, corporate housing and data centres.

Written by Gerard George, Visiting Professor of Innovation & Entrepreneurship, Lee Kong Chian School of Business at SMU; Adina Wong and Lipika Bhattacharya of the Centre for Management Practice (CMP) at SMU, the case study “Growing Mapletree: Singapore’s Real Estate Finance Company” examines the importance of strategic decision-making when an organisation is evaluating growth opportunities and the considerations involved in choosing the path of internationalisation.

The CMP is a full-fledged centre that offers thought leadership in management thinking and Asia-centric cases for learning across disciplines and issues. Developed by CMP’s case writers and faculty partners, its teaching cases focus mostly on organisations operating in Asia, and offer first-hand information furnished directly by business leaders to grow management and business knowledge on Asia.

Here are some key takeaways on how Singapore real estate finance behemoth Mapletree went from being a Singapore-centric real estate company worth S$2.3 billion in 2003 to a global company with assets under management (AUM) of S$60.5 billion as of 31 March 2020.

1. Breaking from tradition

From its inception, Mapletree was viewed as a start-up with the potential to grow beyond its stature as a real estate developer. Launched in the aftermath of the 1997 Asian Financial Crisis, the Mapletree business model deviated from that of traditional, family-owned real estate businesses that tended to sit on balance sheets for a long time, and were badly hit by the Asian Crisis due to elevated gearing. Instead, it took inspiration from real estate businesses in the US, UK and Australia by managing both proprietary capital as well as third-party capital on behalf of investors to grow shareholder equity.

2. Think outside the box

The new hybrid business model combining real estate development and capital market expertise was considered a first in Singapore and Asia and required two very different skillsets. To gain the confidence of the management team, the business’ new capital management capabilities were demonstrated through the creation of a real estate investment trust (REIT) with the company’s existing logistics property assets, the Mapletree Logistics Trust, in 2005.

Furthermore, the “seeds” of this new business model lay within existing assets, many of which were ageing and underperforming financially. Investments were made to enhance and rejuvenate assets like industrial properties, as well as high-profile projects such as the building of mega-mall VivoCity on previously-owned, bare land.

3. Balance agility with defined KPIs

With the onset of sweeping changes, the company needed to establish clear key performance indicators (KPIs) that could be applied across the entire company. It built a mechanism to align activities on a group-level, and shifted from a “personality-driven” to “business objectives-driven” mindset. The KPIs were also calibrated not only to focus on returns, but to ensure the scale and sustainability of the business, as well as maintain agility.

For example, the company missed opportunities to acquire empty land in China as this did not align with its shorter term targets. Instead, it developed longer five-year plans to be more nimble, and encourage sustainable growth.

4. New markets vs new products

While Mapletree’s logistics core business was performing well consistently, the company had to consider further growth strategies to scale the business and enhance returns. It faced the conundrum whether to venture into new geographic markets outside of Asia, or remain in core markets and focus on other areas for expansion — such as leveraging on existing logistics infrastructure to develop an office space sector, student housing and corporate accommodation. By 2019, Mapletree found a balance between both strategies and built a portfolio of over 250 warehouses, over 30 student accommodations and more than 10 corporate housing assets in the US and Europe. The ventures paid off, and the company recorded S$16.1 billion of AUM in these markets that year.

5. Going beyond Asia

Although Mapletree was spreading its influence across the globe, its business in Asia was maintaining steady strength — including growth in China. However, that did not mean that the company applied the same strategy across all international markets. Instead, it adopted a “follow- your-client” approach in Asia, and used an acquisition model to attain its growth targets in Western locations. To build greater scalability, Mapletree had also embarked into a new product segments like student housing and continued to grow in markets like China, while continuing to tap on REITS as a financial instrument to propel its expansion outside of Asia.