Property happenings January 2019

Taking some leisure time to off in this CNY eve. In this post, I will share the implication on the acquisition of Ascendas by Capitaland and give an update on the local property scene. Property hunters will be spoilt for choice in the year of the Pig with several mega launch expected from the en bloc fever (e.g. former Normanton Park, Tulip Gardens and Tampiness Court etc.)

  1. Marriage of 2 giants

The big news inevitably for January 2019 is inevitably the proposed acquisition of Ascendas-Singbridge by Capitaland. There are many good write up on the transaction already.

See some links attached for your reading pleasure.

https://www.capitaland.com/international/en/about-capitaland/newsroom/news-releases/international/2019/jan/FAQs-CapitaLand-ASB-to-create-largest-diversified-real-estate-grp-in-Asia.html

https://financialhorse.com/capitaland-ascendas-singbridge/

Implication of the transaction:

a. Greater impetus on pipeline of assets to be injected to REITs

The medium term implication of the transaction is the injecting of more asset from sponsor (i.e. the expanded Capitaland) to the various REIT vehicles under various sub-sectors across the real estate spectrum and countries.

REIT Sector Countries Mkt Cap (1 Feb 2019) S$ m
CapitaCommercial Trust Office Singapore and Germany 7,002.1
CapitaMall Trust Retail Singapore 8,701.1
Capital Retail China Trust Retail China 1,451.2
Ascott REIT Hospitality (service apartment) Various Cities 2,597.51
Ascendas REIT Logistics and Business Park Singapore, UK and Australia 8,491.8
Ascendas Hospitality Trust Hospitality Australia; Japan; Korea; Singapore 947.7
Ascendas India Trusts Business Space India 1,154.4

 

Capitaland market capitalisation will potentially increase from almost $$14 billion to potentially S$20 billion (i.e. the equity value of the transaction). As S$3 billion out of the S$6 billion is obtained from internal resources, one effective way to reduce the gearing is to recycle existing assets to the various REIT vehicles owned by the expanded Capitaland.

The injecting of asset into the REITs vehicle will help to reduce the gearing level of Capitaland arising from the transaction. The REITs will also benefit from growth opportunities arising from the pipeline of assets injected.

b. Consolidation is the name of the game and future potential transactions

The deal reminds me of a merger between ESR and Viva, which are 2 industrial REITs listed in the SGX. Whilst ESR and Viva which are previously relatively small in terms of market capitalisation, their market capitalisation post acquisition have risen to a respectable S$1.6 billion to allow them to have the scale to compete against the Mapletrees and Ascendas. Similarly, the deal will transform Capitaland to compete against the big boys globally. If well executed, which I believe it will eventually happen because they are fellow subsidiaries of Temasek to begin with, it will be a pride of Singapore.

The other obvious potential consolidation will be the property group helm by Mr. Wee Cho Yaw whose main property company is UOL. UOL owns more than 50% stake in UIC and the eventual take over of UIC by UOL is probably not a matter of if, but a matter of when as there are various synergistic or even duplicate functions which the 2 Companies operate in

2. Local property scene updates

a. Snippets on first major launch for 2019

One of the more significant new launch that hit the market is Fourth Avenue Residences by Allgreen. Interesting fact about the developer is that they have snapped up 2 nearby plots of land via en bloc (former Royalville and Crystal Tower) as well. However, do note that Fourth Avenue Residences is a leasehold plot while Royalville and Crystal Tower have a freehold tenure.

Based on URA data, about 16% of Fourth Avenue Residences is sold and average psf achieved is $2,400 psf. The margin achieved from the sales do not look fantastic and if there are no significant unit sales, developers such as Allgreen will have pressure to offload the units before the timing of the ABSD hits them (i.e. by end 2022).

b. Oxley: Rescind of Ampas Apartment $95 million collective sale

Another more significant news which is obscured within the main media is the recision of the collective sale by Oxley which resulted in a potential lawsuits by disgruntled owners.

https://cos.sg/blog-post/40-home-owners-of-ampas-apartment-sue-oxley-subsidiary-over-collective-sale-dispute/

Clearly, Oxley is attempting to limit its exposure to the local residential sector, having obtained the largest landbanks over the last 2 year up cycle. I will not be surprise if other developers who got their land in the en bloc will attempt to do likewise.

On the other hand, owners of tulip garden can have a good Chinese New Year with the almost one billion dollar deal confirmed.

https://www.straitstimes.com/business/property/tulip-garden-907m-collective-sale-to-yanlord-mcl-wraps-up-successfully

 

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