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Asia's Shopping Mall Maestro


When Wal-Mart Stores Inc. () opened its latest Chinese outlet in the city of Chongqing in June, local residents began lining up outside before dawn, then flooded into the store and an adjoining mall when the doors opened. The cacophony was music to the ears of Wal-Mart execs back in Arkansas. But Liew Mun Leong, CEO of Singapore-based CapitaLand Ltd., also had reason to be pleased. His company, which built the Chongqing mall, is Asia's biggest mall operator and a leading regional property developer. "Building malls for Wal-Mart is a big opportunity for us to ride on the extraordinary boom in China," says Liew.

Indeed, the Chongqing shopping center is one of some 20 complexes -- all anchored by Wal-Marts -- that CapitaLand plans to build in China over the next 12 months. It also is gearing up to build at least 50 more malls in China over the next five years. Merrill Lynch & Co. () estimates that if Wal-Mart expands as planned, CapitaLand -- which has won rights to build 70% of future Wal-Marts in China -- could have 150 shopping centers there by 2010. And Liew plans to replicate the strategy throughout Asia, linking up with Wal-Mart to build malls from India to Japan.

CapitaLand may not be widely known outside the Pacific Rim, but in the region it is considered to be one of the largest and savviest real estate players. The company won over Wal-Mart with its experience, financial clout, and connections in China. CapitaLand was born of a merger in late 2000 of two Singapore government-linked property outfits, Pidemco Land and DBS Land, and is 44.5% owned by Temasek Holdings, Singapore's state investment company. Like many regional developers, CapitaLand's predecessor companies were forced to take huge write-offs on assets following the Asian financial crisis in the late 1990s. But as property prices stabilized earlier this decade, CapitaLand sold off noncore assets, repackaged much of its remaining holdings into real estate investment trusts (REITs), and began to expand outside of its home base. "CapitaLand is probably one of the best regional property plays in Asia," says Sean Monaghan, a Merrill analyst in Singapore.

Much of the credit goes to CEO Liew, 59, a former senior civil servant in Singapore who briefly served as head of Pidemco Land before the merger. His first job was to knock down CapitaLand's groaning $5.5 billion debt load. He has pared that back to a more manageable $3.5 billion today, mostly by selling off crown- jewel assets such as Singapore's Raffles hotel chain and Swissh?tel, which were sold to U.S. private equity group Colony Capital for $870 million in July. Some analysts believe CapitaLand is still too highly leveraged, but Liew dismisses those concerns.

HUGE PROFIT MARGINS

Even as the company has sold down many legacy holdings at home, it has widened its footprint by moving into Australia, Hong Kong, mainland China, and Japan. So far most of those investments appear to be paying off. While margins for property developers in Singapore average from 5% to 7%, CapitaLand earns 25% to 30% on its housing projects in China. The company reported that profit tripled, to $187 million, last year. Smith Barney Citigroup () estimates CapitaLand's profit will swell to $408 million on $2.1 billion in revenues this year. Investors are impressed: CapitaLand's Singapore-listed stock is up 81% over the past 12 months -- and 30% since late July.

One reason for the strong performance is that CapitaLand has been quick to take profits on its holdings rather than sit on paper gains. It has done that by setting up REITs and other property trust funds, now worth a combined $6 billion. CapitaLand earns money not only by selling off noncontrolling stakes in its property holdings through these funds, but also by charging high fund-management fees. "Unlike traditional Asian real estate companies that are basically developers, CapitaLand is involved in the whole value chain of property -- as investor, developer, operator, [and] manager of property funds," says CapitaLand CFO Olivier Lim. "Our strength is our unique business model."

Some fear CapitaLand is taking too many risks. Nearly 70% of revenues and profits now come from outside its home base -- mostly housing projects in China and Australia. China alone accounts for nearly 30% of profits and Australia 23%. Critics say those holdings are at risk as housing bubbles in markets such as Sydney and Shanghai deflate. "Exposure to China and Australian housing is a concern," says UBS () analyst Charles Neo. "But CapitaLand is moving fast to minimize the risks in those segments."

LUXURY CONDOS

Neo notes that the company has diversifed its Chinese residential portfolio by expanding in Beijing, Guangzhou, and Ningbo. And CapitaLand has plenty of investments outside residential properties. In addition to its ties to Wal-Mart, it operates two malls in the Chinese capital with Beijing Hualian Group, China's No. 3 retailer. It has contracts with Hualian to build six more malls over the next two years.

CapitaLand hasn't sworn off new investment in Singapore, either. It is considered the front-runner to clinch at least one of two planned casino resorts that will go up for bidding by the government later this year. CapitaLand expects that building the resorts would cost it and its partners, MGM Grand and Krezner International Ltd. (), some $4 billion. Such partnerships are key to CapitaLand's strategy all over Asia. In Thailand it has joined with one of Bangkok's richest men, whiskey tycoon Charoen Sirivadhanabhakdi, in a 40-60 joint venture to develop luxury condos.

What's next? Liew has begun buying properties in Japan to take advantage of the real estate revival there. CapitaLand has two Japan property funds that invest in shopping centers and residential property that are worth a combined $710 million. And he says that wherever Wal-Mart may decide to build up a presence in Asia, CapitaLand will be there, too.

By Assif Shameen in Singapore


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