CapitaLand Limited (SGX: C31) has set its sights to be the largest real estate investment manager in Asia.
This morning, CapitaLand revealed that it has entered into a deal with Temasek, one of the Singapore government’s investment arms, to fully acquire Ascendas Pte Ltd and Singbridge Pte Ltd. The duo, which are collectively known as Ascendas-Singbridge, are subsidiaries of Temasek.
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The deal is valued at S$11 billion and is subject to approval by CapitaLand’s shareholders at an Extraordinary General Meeting (EGM) to be convened later this year. If approved, CapitaLand would become Asia’s largest diversified real estate group.
More on Ascendas-Singbridge
Ascendas-Singbridge is a leading provider of business space solutions in Singapore. The Ascendas arm owns business space, industrial development platforms, as well as fund management platforms. Meanwhile, Singbridge’s expertise is in developing large scale urban development projects. Ascendas-Singbridge’s business spans 11 countries, including Singapore, China, India, Australia, the United Kingdom, and the United States.
Ascendas-Singbridge is also the sponsor, manager, and significant unitholder of Ascendas Real Estate Investment Trust (SGX: A17U), Ascendas Hospitality Trust (SGX: Q1P), and Ascendas India Trust (SGX: CY6U).
How Will the Deal Benefit CapitaLand?
As a real estate company, assets under management (AUM) is one of the key drivers of CapitaLand’s business.
Following the Ascendas-Singbridge deal, the combined AUM of the enlarged CapitaLand will exceed S$116 billion, making the company the ninth largest real estate investment manager in the world by AUM. For context, CapitaLand is currently at the 14th spot with S$93 billion in AUM. The deal will also allow CapitaLand to reach its 2020 AUM target of S$100 billion earlier.
Furthermore, the property classes in CapitaLand’s ecosystem will be expanded with the deal to include logistics, business parks, industrial, data centres, lodging, commercial, retail and residential businesses. The company’s geographical presence will also span more than 180 cities across 32 countries.
What Are the Financial Terms of the Deal?
The transaction’s enterprise value is S$10.91 billion, comprising S$6.04 billion in equity value and S$4.87 billion in net debt and minority interest. CapitaLand will pay Temasek S$6.04 billion, which will be funded by 50% in cash and 50% in new CapitaLand shares.
CapitaLand intends to finance the cash portion with debt and other options, but the company also made clear that it has no plans to issue additional new shares for the cash portion. For the remaining 50% of the deal that will be funded by the issuance of new CapitaLand shares, the company intends to issue 862.3 million at a price of S$3.50 each; the issue price is 7% higher than CapitaLand’s share price of S$3.27 as of 11 January 2019.
If the transaction closes successfully, Temasek’s stake in CapitaLand will increase from 40.8% to 51%.
The deal will immediately increase CapitaLand’s earnings per share (EPS) and return on equity (ROE). But, there will be a slight dilution in net asset value (NAV) per share and an increase in leverage.
CapitaLand plans to lower its leverage through asset recycling and cash from operations. The property giant added that there would be no change to its dividend policy.
The EGM to approve the deal is expected to be held by the first half of 2019. As an interested party, Temasek and its associated entities will not be allowed to vote on the Ascendas-Singbridge acquisition at the meeting.
A whitewash resolution will also be tabled at the EGM for CapitaLand’s shareholders to waive the obligation on Temasek to make a mandatory general offer for CapitaLand’s shares which it does not own.
The deal is expected to be completed by the third quarter of 2019.
The Foolish Takeaway
Overall, I see the deal as a positive for CapitaLand’s shareholders, even though there will be a slight dilution in book value per share and higher leverage. If the deal is approved, CapitaLand’s AUM will rise by 25%. The increase in AUM will also give the company the financial clout to broker larger deals to further its AUM-growth in the years ahead.
CapitaLand had halted trading of its shares this morning before the market opened, and trading has yet to resume as of the time of writing.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of CapitaLand and Ascendas REIT. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.