Would a listing of Mapletree Investments be good for the Singapore market?

SOME of Singapore's biggest corporations are struggling, including those backed by state investor Temasek Holdings.

Singapore Airlines, CapitaLand, Keppel Corporation, Sembcorp Industries and Sembcorp Marine all posted losses in their latest full-year financial results.

In May, after booking sizeable non-cash impairment charges for some investments, Singtel announced a strategic reset that included unlocking the value of its infrastructure asset portfolio.

Bucking the trend in a Covid-19 pandemic-impacted year, however, is Temasek's wholly owned property developer and manager Mapletree Investments.

Mapletree posted a net profit of S$1.85 billion for the financial year ended March 31, 2021, a 4 per cent increase from the previous year.

This net profit included a one-off accounting gain from the deconsolidation of Mapletree Industrial Trust (MIT). If excluded, Mapletree's net profit was a less-exceptional S$1.02 billion.

But Mapletree's return on equity (ROE) of 10.6 per cent for its latest financial year stands out when contrasted with the low to negative ROEs reported by large listed property groups. Both CapitaLand and City Developments reported negative ROEs for their most recent financial years. UOL's ROE was 0.13 per cent for the financial year ended Dec 31, 2020.

Furthermore, Mapletree's performance in FY2021 is not a one-off event. Its five-year average ROE, excluding the last financial year, was 12.9 per cent.

Excluding the latest reported financial year, the five-year average ROE for CapitaLand, City Developments and UOL was 8.1 per cent, 6.4 per cent and 5.6 per cent, respectively.

Mapletree's ROE compares favourably with Singapore's largest group by market capitalisation as at end-May - DBS posted ROE of 9.1 per cent for the financial year ended Dec 31, 2020 and an average of 10.8 per cent over its latest five financial years.

DBS' share price is up by around 90 per cent over a five-year time frame. The Straits Times Index, in comparison, has risen by around 14 per cent. Could Mapletree have shown a similar share price performance if it was listed?

A large owner of assets

Mapletree traces its roots to port operator PSA Corporation's spin-off of its non-port properties, announced in December 2000.

The group has been led by chief executive Hiew Yoon Khong since 2003. Mr Hiew, who had held senior appointments at CapitaLand including that of chief financial officer, has helped transform Mapletree from a Singapore-centric property owner into a global one.

Under his watch, its shareholder's funds have grown from S$2.2 billion in FY2004 to S$17.7 billion in FY2021.

The group's operations today encompass real estate development, investment, and capital and property management.

What is Mapletree's secret?

One possible reason for its strong performance is an ability to allocate capital to the right asset classes.

With its focus on building scalable capital management platforms, Mapletree is active in private funds and public Reits. Assets under management (AUM) grew by 9.6 per cent to S$66.3 billion in FY2021.

Mapletree is a sponsor of four Singapore-listed real estate investment trusts (Reits). Mapletree Logistics Trust, MIT, Mapletree Commercial Trust and Mapletree North Asia Commercial Trust generated total returns of 27.4 per cent, 17.9 per cent, 21 per cent and 37.5 per cent, respectively, in FY2021.

Going forward, the group's plans for new private funds include a US office fund, a China-focused fund, and a second US logistics fund.

Mapletree is also looking to put suitable portfolios into Reits in the coming years.

It is reportedly in preliminary discussions on the listing of a student housing Reit here.

The group has substantial exposure to the property classes benefiting from digitalisation namely logistics and data centres. Mapletree in FY2021 deployed S$2.3 billion of capital into these sectors, which have outperformed other asset classes during the pandemic period. They contributed S$596.2 million or 32 per cent of the group's earnings before interest, taxes and share of operating profit or loss from associated companies and joint ventures.

A strong potential peer

Over the years, numerous property groups have left the local bourse through successful privatisation exercises. Among them have been Allgreen Properties, MCL Land, Keppel Land, United Engineers, Sim Lian Group, and SC Global.

This exodus is not surprising given that property plays have often traded at substantial discounts to net asset value (NAV).

CapitaLand was trading at an over 20 per cent discount to NAV prior to announcing a corporate restructuring exercise in March. This exercise will see the capital intensive business of development, where gestation periods can be long, taken private.

What is to be listed is real estate investment manager CapitaLand Investment Management (CLIM), which will have stakes in six listed Reits and business trusts, more than 20 private funds, and a sizeable lodging business.

The hope is that CLIM, which had pro-forma AUM of S$115 billion as at end-December 2020, can be an exception among local listed property groups by trading above NAV.

Having Mapletree listed might in fact set a worthy benchmark for CLIM and any other listed property groups that aspire to better valuations through a restructuring.

A company such as Mapletree - with strong financial performance - would be a better indicator of what investors are willing to pay for a property group.

If investors reward Mapletree with a share price premium relative to book value, that would debunk the notion that shares of listed property groups cannot fetch proper valuations.

The bar has already been set, of course. Mapletree has shown that it does not need to be listed to scale up. CLIM's challenge is to post ROE in the double digits consistently, just as Mapletree has done. Deliver such returns and CLIM can become a new darling for investors.

Delivering strong ROE consistently may be the best panacea to the problem of investors undervaluing listed property groups.