HomeCase StudySGXIs Capitaland’s $11 Billion Acquisition of Ascendas-Singbridge a Good Deal?
Is Capitaland’s $11 Billion Acquisition of Ascendas-Singbridge a Good Deal?
January 18, 2019
Capitaland Limited (Capitaland) announced its intent to acquire Ascendas-Singbridge (ASB), owner of a portfolio of mainly industrial and logistic properties from Temasek Holdings, in a deal worth around $11 billion enterprise value.
This is certainly a blockbuster deal, going
by the size of the transaction value, and by virtue that both Capitaland and
ASB are major real estate players locally. It is a major expansion by
Capitaland, which the management stated that it will create the largest
diversified real estate group in Asia.
Is this a good deal for existing shareholders
of Capitaland, and how would it impact both Capitaland and REITs under the ASB
umbrella in future (ASB is not listed)? We shall take a closer look in its
The deal involved three parties. Firstly, Capitaland is a household name in Singapore which is a major real estate developer, operator and owner with assets in retail, office and hospitality sectors.
ASB is a provider of sustainable urban
development and business space solutions that is fully owned by Temasek
Holdings and JTC Corporation. With $23.6 billion of Assets-under-Management
(AUM), it is the sponsor of some well-known REITs such as Ascendas REIT and
Ascendas Hospitality Trust.
Temasek Holdings, one of two sovereign
wealth funds of Singapore, is a major shareholder of both entities, with 40.8%
stake in Capitaland and 100% in ASB.
of The Acquisition
With Capitaland buying over the entire ASB
from Temasek Holdings, it is taking on the full assets of ASB including its
debts. In total, the full enterprise value is worth $10.9 billion, comprising about
$6 billion of equity and $4.9 billion of liability and minority stakes.
actual amount that Capitaland will pay Temasek is $6 billion via a mixture of
About $3 billion cash sourced from debt and other financing options
862.3 million Capitaland shares issued at $3.50, that is worth about $3 billion
As new shares
are being issued to Temasek, this essentially means that Temasek’s ownership in
Capitaland will increase from 40.8% currently, to 51% post-acquisition. ASB
will then be a fully-owned subsidiary of Capitaland.
There are a few benefits as shared by Capitaland management.
Firstly, it enables Capitaland to expand
into real estate sectors that capture the growth of new economy mainly in the
future megatrend of e-commerce and urbanisation. If we look closely,
Capitaland’s suite of assets and REITs cover the retail, office, lodging and
hospitality sector, but not the industrial and logistics sector that are
booming in tandem with rise of e-commerce. By acquiring ASB, it immediately
completes its sector coverage by adding a pool of established industrial and
logistic assets under its wings. This is probably the reason why they picked
ASB too as it is most well-known for the largest industrial REIT locally –
New real estate sectors added from ASB (in green
dots). Source: Capitaland’s Acquisition Deal Presentation
The deal also enables Capitaland to
strengthen its presence in existing key market of Singapore and China, and
enter new growth market mainly India. The group will see a 40% and 9% increase
in Singapore and China AUM respectively, and establish its India presence to $3
billion of AUM in one fell swoop.
Perhaps another angle to look at it is that
Temasek Holdings, as majority shareholder of both Capitaland and ASB, played a
role in pushing for this deal that streamlined its ownership from two companies
with some overlapping operations, to one company with a larger stake.
Impact on Capitaland
Based on pro forma financial figures for
Capitaland and ASB from last twelve months earnings, the proposed transaction
would increase Earnings per Share and Return on Equity by 4% and 5.7%, while
reducing the Net Asset Value to $4.31 per share.
The most apparent benefit of this deal is
that Capitaland will be a much bigger real estate player as its total AUM will
be bumped up to $116.5 billion. This would place the combined entity in the
league of 10 largest real estate investment manager in the world. With a much
larger scale, the operation landscape of Capitaland widens to the global stage,
and it can compete for better assets, cheaper financing rates, and stronger
talents effectively with other global giants. It is indeed a case of an
already-formidable giant becoming a global behemoth.
Up till now, Capitaland has its hands in
full spectrum of real estate sector except for industrial/business parks and
logistic assets. With this acquisition, the picture is now complete as Capitaland
expands into new sectors that are better positioned to ride on the growth of
new economy in e commerce and sustainable urbanisation, which are ASB’s forte.
As with any mega acquisition deal, much
work has to be done to integrate the acquired company to ensure that
operations, systems, corporate practices and culture gels well enough to
deliver the intended synergistic effect. It is very often a challenging project
and could take some time. Capitaland is aware of the mammoth task on hand and
has established an Integration Committee to drive integration plan going
Of course, there is another issue of
whether Capitaland overpaid for the acquisition and the ensuing gearing
increase. With the global economy picture not at its brightest prospect at the
moment, and real estate value being closely linked to economic performance, it
is surely an issue that warrants close monitoring.
Ultimately, if the integration of both
companies is executed successfully, then paying a high price would be, on
hindsight, worthy. So, it all boils down to post-merger execution of business
The share price of Capitaland, its REITs and
ASB-linked REITs all showed positive movement immediately after the acquisition
is announced. Apparently, market seems to like the proposed deal and the
increase in share price shows some optimism on the fruition of future growth
and benefits to all related companies.
The acquisition is not cast in stone yet as
shareholders’ approval still need to be sought through an EGM.
Regardless, it pays to monitor Capitaland’s
future corporate announcements closely and there will be some exciting times
CS Jacky is a Remisier and Financial Adviser with Phillip Securities Pte Ltd. Graduated with a Bachelor in Business Administration (Finance), he has been investing in the stock market since 2010. He identifies companies with good prospect trading at a low valuation using a unique blend of fundamental, technical, and portfolio analysis. He also holds REITs and dividend paying shares. He holds regular seminar to share about market updates, investment insights of specific stocks in his watch list, and overall wealth management for retail investors. He is the owner-blogger of 'CS Jacky - 360 Wealth Management' and a guest writer for Value Invest Asia.