Transforming CapitaLand

LIM Ming Yan is in his element when he shows you around the life-like architectural scale models of all the Raffles City projects that CapitaLand has developed, which dominate the lobby of the company's offices on the 30th floor of Capital Tower.

"This is the Chongqing Raffles City," he points out. "This will be the biggest of them all." "Here's the metrorail station." "This is the office block and there's the shopping mall." "See, the luxury residences face the waterfront."

He walks around the model to show it to you from another angle, pointing out the access roads, the pedestrian walkways. He seems to know every detail - the layout, the square footage, the name of the architect (in this case, Moshe Safdie, who designed Marina Bay Sands), the project cost and timeline.

If anybody should know, it would be him. Mr Lim, who is now CapitaLand's president and group CEO, served as CEO of CapitaLand China Holdings from 2000 to 2009 when most of the Raffles City projects got built. He took over from Liew Mun Leong as group CEO of CapitaLand in 2013.

Diversified empire

Formed in 2000 following the merger of DBS Land and Pidemco, CapitaLand has since grown into one of Asia's largest real estate companies. Headquartered and listed in Singapore, it has more than S$68 billion worth of property under management (as of the end of last year) including five operating Raffles City integrated developments, 86 shopping malls, more than 24,000 serviced apartment units and 10 office buildings. It has a pipeline of 50 more projects worth another S$36 billion which will come onstream over the next three years.

In his New Year message to the staff, Mr Lim described 2014 as "the year of transformation" of the company.

The process which had actually started in 2013 was aimed at simplifying the organisation to make it better able to deal with the changing dynamics of the real estate industry.

"The market has changed," he explains. "In many of the cities where we are present, a lot of transport infrastructure has been put in. As a result of that, there are a lot more of what we call integrated opportunities - as opposed to opportunities that are purely residential or purely retail or purely serviced residences. These are very much like Raffles City in Singapore, which gives you a good idea. It sits on top of a transportation node and you have a mall, you have hotels and offices. It's an integrated development.

"The other change is that in many of the markets in which we operate, companies have got much bigger. Bigger companies are not constrained by the way we are organised; most of our peers are able to execute across different asset classes - residential, shopping malls and offices. So they are able to get their returns in a more optimal way as opposed to individual units trying to coordinate among themselves."

Two major initiatives in CapitaLand's transformation were the divestment of its stake in Australian property developer Australand in May 2014, soon followed by the full integration of CapitaMalls Asia back into CapitaLand the following month. This enabled CapitaLand to move resources more easily to deal with the needs of its integrated developments. "Legally, when you have separate structures, it can be harder for us to operate across different business units, especially when you have a separate listed entity," Mr Lim explains.

Information sharing between business units - another aspect of CapitaLand's transformation - also became easier.

The CEO elaborates: "As the market has changed so much and is moving so fast, it's important that we make better use of data and information to help us have better insights into our customers and what is changing in the market. To enable us to do that, we must allow free and open communication across different entities. Once you have listed entities, you have corporate governance guidelines and because of that, people don't communicate as much as they otherwise would.

"Now it's very simple. You have CapitaLand which is listed and you have listed Reits. When a property has stabilised with steady income we put them into the Reits, whereas CapitaLand will undertake most of the development and continue to operate the assets until they stabilise. So, having these two entities allows us a lot more flexibility and makes us more nimble. We can move much faster. If the opportunities are in shopping malls, we can move resources into shopping malls. If the opportunities are in integrated developments, we can move resources there."

Two markets

Although CapitaLand is well diversified by type of asset, geographically it is not. Eighty-two per cent of its assets are in just two countries, China and Singapore, in roughly equal measure. Mr Lim seems unfazed by this apparent concentration.

"China is a very big market. Now we have 40 per cent of our capital deployed in China. In the context of the size of the market, I would say that is reasonable. We see China as an opportunity and we are prepared to take a position on China. Singapore has always been our home market. We started out from here. But Singapore really is a hub for Asean. It must be seen in the context of South-east Asia, not just Singapore alone."

As it turns out, both China and Singapore are experiencing property market slowdowns - both suffer from oversupply (though this varies by city in China) and falling prices. How is CapitaLand dealing with this challenge?

For Mr Lim, the outlook isn't necessarily gloomy. "In China, the cooling measures for the property market were put in place a few years ago, but recently some of the measures have been removed," he points out. "It's a reversion to a more normal market now. They have relaxed restrictions on individuals buying property. These restrictions were very strict; if you owned one property you could only buy one more. That policy was relaxed in November last year."

Moreover, he adds, urbanisation is continuing and the economy is growing at a decent, albeit slightly slower, pace. "And China is a very big market - there are cities where there is still demand for well built, well-located residential properties."

Residential properties aside, CapitaLand has been most active in its integrated developments. It has nine Raffles City projects in China, of which four are already operating - and doing "very well", according to Mr Lim.

"Judging from the four operating projects, we have a pretty good fix on what the issues are and how we can tap into the market," he says. "They have given us very good insights into the the market and into customer behaviour. The shoppers are very happy. We are happy with the progress we are making in China."

As for Singapore, Mr Lim points out that for CapitaLand, it is more than just a residential market; it's important to look at the office and shopping segments too.

He expects that the office market will remain strong in 2015, while the performance of shopping malls will be "relatively stable", although adding that the mall segment is unlikely to see much growth, partly because of the strength of the Singapore dollar vis a vis the currencies of neighbouring countries.

On the residential market, Mr Lim says: "We see some of the government's cooling measures as quite necessary", referring to the nine rounds of property-cooling measures introduced since 2009. "The market has stabilised and prices have corrected by 5 to 10 per cent, depending on how you look at the statistics. So at this stage, the market is very much under control." He adds: "I think there is a possibility that the government could make some adjustment to policies, possibly towards the end of the year."

Mr Lim says that CapitaLand has been anticipating Singapore's weakening residential market. "Two years ago... we took the view that it would be a relatively challenging market for a period of time. So we decided to de-risk our residential portfolio in Singapore by reducing our margins and making prices more attractive. We managed to achieve significant sales in 2013 and this continued into 2014. That has put us in a comfortable position."

In any event, Mr Lim points out, CapitaLand's total exposure to residential property is about 26 per cent in terms of its total assets by effective stake. The remaining 74 per cent of CapitaLand's exposure is to investment properties, including its integrated developments - its Raffles City projects - shopping malls, office buildings and service apartments. "These give us recurring steady income," he says.

The e-commerce wave

One of the striking features of retailing in recent years - especially in China - has been the explosion of e-commerce. Chinese consumers are increasingly moving toward buying products online rather than in traditional malls. According to a report by KPMG last year, e-commerce transactions in China will cross US$540 billion in 2015 - far ahead of even the United States. Some reports suggest that the growth of e-commerce could pose a threat to physical retail malls. How is CapitaLand responding to the e-commerce phenomenon?

"Let's put this in perspective," says Mr Lim. "85-90 per cent of consumption still happens in physical spaces - depending on how you calculate, in particular, whether you include food and beverage consumption. Only 10-15 per cent of consumption happens through e-commerce. Yes, e-commerce is growing fast, but from a low base - though the growth has come down from triple-digit to double-digit growth."

Moreover, the growth is uneven between products, he adds. "Certain trades will be more affected by e-commerce and certain trades will be less affected. For example, fashion and fashion accessories seem to be more affected. In the past, these categories would account for a high proportion of sales per square metre in physical malls. But that has dropped. Now we see F&B making up for that drop.

"Another trend is cinemas. A lot of people were predicting the demise of cinemas, saying that because of the Internet and DVDs you can watch movies at home. But on the contrary, cinemas continue to do fairly well - both in China and in Singapore.

"Look at the youngsters. My own kids are in their teens and early 20s. They go to cinemas. I just went too, last week. It's always an interesting experience - what you get at the cinema is something you can't get at home - a surround sound effect, for example, which is not the same as in a typical home theatre. So, it's not just about being able to access it through another channel, it's about experiencing it in a different environment."

What do customers want?

Mr Lim points out that CapitaLand closely tracks the spending habits and preferences of its customers and the shoppers in its malls, through loyalty programmes and by working with web portals and information service providers. "What is important for us," he says, "is what, really, do customers want? What do shoppers want? And how can we help our retailers to do better business? We are experimenting. We are trying different things. We are trying to find out the profile of shoppers and what they want and then we share this information with our retailers. This will allow them to curate their products better.

"We do this wherever we are. This is a journey. We have started and we will continue to do this. The general feedback I ask for is 'Is this information useful to our retailers? Do they use it?' Yes, it is useful and they do use it for their promotion and marketing campaigns."

Win-win deals with tenants

So much for shoppers. What about tenants? Some tenants, and indeed even industry associations, have complained that large mall owners like CapitaLand tend to squeeze their tenants on rentals to get maximum returns, because many of their malls are owned by Real Estate Investment Trusts (Reits) which are under pressure to deliver high dividends to their shareholders. How valid are these complaints?

"It's not about the ownership structure," says Mr Lim. "It doesn't really matter whether a mall or office block is owned by a developer, a single owner, an investor, a fund or by a Reit. At the end of the day, it is the question of how the owner of the mall can add value to the retailer. How can you make sure that they continue to do well? We see this as a close relationship with our retailers; we can only do well if they are doing well. If they are not doing well, there is no way we can do well. Our job is to help them do better - for example, through data analytics to help them be more accurate in their positioning, marketing and promotion."

CapitaLand is also helping its mall tenants to improve their productivity, he adds. "For example, we just set up a centralised dishwashing facility in one of our malls. That can provide a service to all our F&B outlets. So they no longer have to employ people to wash dishes. The dishes will be collected, washed and returned to them within a few hours. Not only do they save on manpower, they also save on space. If they use their space more efficiently, they can lower their costs. Instead of taking, say, 1,000 sq ft of space, they only need 900. That's automatically 10 per cent off from what they are supposed to pay. We have done that with a number of retailers, we have looked at their layout and helped them reduce some of the space they need. As a result of that, they pay lower rentals. We take their excess space, reconfigure it and let it out to other users. So it becomes a win-win arrangement."

A global business

One of the lesser known parts of CapitaLand's business is private equity, whereby it invests or co-invests in properties in multiple countries. It is, in fact, one of the largest real estate private equity investors in the world, managing funds close to S$70 billion in size - far bigger than its market capitalisation of S$15.3 billion as of Feb 13, 2015.

Most of its co-investors in these funds are institutions and the typical investment size is about S$200 million. Where does Mr Lim see the best investment opportunities?

"China is good," he suggests. "Because of the urbanisation taking place, some locations may be redefined as prime. We can move into certain areas where we see future capital appreciation. South-east Asia is also interesting - urbanisation is also happening in Vietnam and Indonesia." So far, CapitaLand has stakes in residential projects in four cities in Vietnam and a mixed development, as well as ten serviced residence properties in Jakarta. It has six shopping malls in Malaysia, and more than 1,700 serviced residence units in eight properties. It also has a presence in the Philippines, Laos and Myanmar through its serviced residence business.

"There is potential for us to do a lot more," he says. There are opportunities in Singapore too, he adds, thanks to urban renewal.

CapitaLand's involvement in the Iskandar Development Region in Johor has so far been insignificant. "We have something in Danga Bay," says Mr Lim, referring to a mixed residential-commercial area on part of the waterfront in Iskandar. "We have gone into an agreement to acquire a piece of land, but it may take a while (to develop). We want to make sure all the necessary approvals are in place before we start. We are in no hurry."

But Mr Lim wants to take CapitaLand to more distant shores. His main vehicle: the company's service apartment business, which so far has been concentrated in Asia and Europe via its subsidiary, the Ascott Limited, which is the world's largest serviced residence owner-operator. "We don't see this as just an Asia business or a Europe business," he says. "We see it as a global business. We have set up the platform and systems. So it doesn't matter where the service apartment is - we can continue to be just as effective. The marketing and bookings of service apartments - a lot of this is done online. Once you go on the Internet, you are global. So there is no reason why we should restrict ourselves to Asia and Europe."

Will CapitaLand head for North America then?

"If the right opportunities come along," says Mr Lim. "We are always open to opportunities." He acknowledges that the best time to have gone into North America was just after the 2009 global financial crisis, when the US property market had crashed. But he takes the long view and is not concerned about being too late. "When we went into China in 2000, a lot of Shanghainese were telling me, 'you guys are too late'. But in 2010, everybody I met in China told me 'oh, you came in early!'

"We are long-term investors," he says. "So if today we adopt the mindset that this is a global business, there will be a lot of potential for us to find the right opportunities over time."

LIM MING YAN

President and group CEO, CapitaLand

Deputy chairman, CapitaMall Trust Management, CapitaCommercial Trust Management, CapitaRetail China Trust Management and Ascott Residence Trust Management

Age: 52

Married, with 3 children

EDUCATION

1985 Bachelors degree in Mechanical Engineering and Economics, University of Birmingham, UK

2002 Advanced Management Programme, Harvard Business School

CAREER HIGHLIGHTS

1996-2000 Vice-president, Pidemco, overseeing the company's commercial and serviced residence business in Singapore

Nov 2000-Jun 2009 CEO, CapitaLand China Holdings Pte Ltd

Jul 2009-Feb 2012 CEO, The Ascott Ltd

May 2011-Dec 2012 Chief Operating Officer, CapitaLand "At the end of the day, it is the question of how the owner of the mall can add value to the retailer. We can only do well if they are doing well. Our job is to help them do better - for example, through data analytics to help them be more accurate in their positioning, marketing and promotion."