Size and influence

SINGAPORE (Mar 1): Raffles City Chongqing (RCCQ), CapitaLand’s mammoth mixed-use development in China, rises up from the landing point that had, 1,000 years ago, welcomed emperors visiting the once far-flung corner of the Chinese empire. Today, Chaotianmen is part of the heaving and highly developed metropolis of Chongqing, arguably China’s most populous city that sits at the heart of Beijing’s ambitious Belt and Road Initiative.

With eight skyscrapers that are 250m or 350m tall and the world’s highest skybridge sitting atop four of the curved towers, RCCQ has been dubbed an engineering marvel. It bears a resemblance to Singapore’s iconic Marina Bay Sands, which features a “ship” perched on top of three curved towers and had also been a challenge to construct. To be sure, the two developments share the same architect and engineering firm — Moshe Safdie and London-based Arup.

Still, RCCQ is the jewel in CapitaLand’s investment in the city, and indeed in China, which has been a key feature of the real estate developer’s growth plans over the past five years. During this period, the group had six major projects under development. It also built Raffles City Shenzhen; the LuOne Mall in Shanghai; and Suzhou Centre, which opened in November 2017 and is three times the size of ION Orchard.

Yet, its venture into China has been a risky endeavour, as the group’s recently appointed CEO Lee Chee Koon mentioned in a recent interview with The Edge Singapore. Indeed, for a time, CapitaLand persistently failed to hit the return-on-equity target of 8% to 12% that it had set for itself in 2013. Now, Lee says he plans to raise CapitaLand’s ROE to double digits in the coming years, particularly since most of the projects it had under development have been sold or are already in operation.

Those plans may get a boost if CapitaLand’s proposal to acquire Ascendas-Singbridge (ASB) from Temasek Holdings is approved by minority shareholders. Yet, therein lies another set of challenges for Lee. There are doubts in the market over the timing of the deal, the price at which CapitaLand is paying for the assets, as well as the debt it is expected to take on to finance the deal.

But, CapitaLand could very well be in a stronger position to grow after the transaction. ASB’s business and assets are considered to be complementary to CapitaLand’s existing footprint, and the combined entity will become Asia’s largest diversified real estate play. It will also be among the world’s top 10 investment managers in terms of real estate assets under management.

CapitaLand’s heft could serve another, greater purpose. As a global real estate player, it must lead the charge in sustainable building practices. Skyscrapers take immense resources to build. The production of cement and steel — primary construction materials — accounts for roughly 6% and 8%, respectively, of carbon emissions each year. And, researchers have found that high-rise buildings use more energy per sq m, and are responsible for twice as much carbon emissions as shorter buildings.

To be sure, CapitaLand is already known as a “green” builder; it reported a 29% cut in carbon emissions intensity from 2008 to 2017, surpassing the 2020/23% target it had set for itself. It is listed on the Dow Jones Sustainability World Index. That has in turn helped it secure a $300 million, five-year loan from DBS Bank. Its developments have been variously certified for their energy efficiency and other sustainability metrics.

CapitaLand’s “green” credentials fit well with China’s climate management targets — the world’s biggest polluter is forced to rein in carbon emissions as smog blankets its cities and chokes off economic competitiveness. RCCQ was accorded a LEED (Leadership in Energy and Environmental Design) Gold pre-certification by the US Green Building Council. LEED is the most widely used green building rating system in the world. LEED certification is awarded in recognition of sustainable building strategies and practices. The development will have a district cooling system designed, built, owned and operated by Singapore Power that is expected to deliver up to 50% cost savings in energy consumption versus conventional building chiller plants.

In a news release earlier this year, CapitaLand announced that it had moved up in the global rankings of the most sustainable companies, jumping 65 places to rank 33rd among 100 companies in the Corporate Knights index. It highlighted its track record in global sustainability, noting that that helps “future-proof” its business and safeguard the long-term interests of its stakeholders. The group must now translate that record into influence for the rest of the industry to follow suit.

For more on CapitaLand and Lee, read this week's cover story (Issue 871, week of Mar 4) "Capitalising on size" here or subscribe to The Edge Singapore