CapitaLand CEO Puts Stamp on Developer With $4.4 Billion Deal

(Bloomberg) -- CapitaLand Ltd.’s new chief Lee Chee Koon has wasted no time putting his mark on the Singapore developer, striking a S$6 billion ($4.4 billion) deal with Temasek Holdings Pte to create what he says will be Asia’s largest diversified real estate company.

CapitaLand will pay a mix of cash and new stock for Temasek units Ascendas Pte and Singbridge Pte, bolstering its assets to more than S$116 billion spread across 180 cities in 32 countries, it said in a statement Monday.

CapitaLand CEO Puts Stamp on Developer With $4.4 Billion Deal

Lee, the 43-year-old who took the top job in September, is steering CapitaLand deeper into new markets such as the U.S. and Europe, as well as expanding the developer’s reach in Singapore. The transaction vaults the company over a 2020 target for assets under management of S$100 billion as it moves into areas that can provide a buffer for when other more traditional parts of the real estate industry soften. Those include logistics centers, which are tied to the growth of e-commerce, and business parks.

“The deal benefits CapitaLand in two areas -- assets under management and diversification,” said Marc Tan, a research analyst at KGI Securities Pte. More assets mean a boost to fees and rental income, while a larger geographical footprint provides stability, he said.

It also lifts Temasek’s stake in CapitaLand to a majority, from 40.8 percent to about 51 percent. That increased ownership will “be positive for bondholders looking for strong institutional backers,” Tan said.

CapitaLand CEO Puts Stamp on Developer With $4.4 Billion Deal

Lee is charged with scaling up CapitaLand’s real estate capabilities across asset classes and geographies, positioning the group to better ride out the economic and technological changes. Prior to being appointed group CEO, Lee was head of The Ascott Ltd., an international serviced residence owner-operator. He joined CapitaLand in 2007.

Property markets from Sydney to Vancouver have staged a collective correction over the past few months as government cooling measures bite and the specter of rising interest rates dents investor confidence. Singapore hasn’t been immune with home prices on the island posting their first drop in six quarters in the three months ended December.

Phase Three

Lee described CapitaLand as now moving into the third phase of its development, after expansion from Singapore into China and other parts of Southeast Asia, and then a period of consolidation and laying the foundation for future growth. Discussions surrounding the current deal had been underway for more than six months, he said.

“And 3.0, I would say it’s a global ambition,” Lee said at a media briefing in Singapore on Monday. “One that’s really going to build asset classes, build CapitaLand into a range of different asset classes, different markets, to give us that optionality, to truly become a global real estate player.”

CapitaLand in September spent $835 million on a portfolio of 16 freehold multifamily properties in the U.S., marking its foray into the country’s multifamily asset class. In November, it teamed up with Singapore’s sovereign wealth fund GIC Pte to buy Shanghai’s tallest twin towers for 12.8 billion yuan ($1.8 billion), doubling down on its bets on China’s property market.

Tremendous India

Post the deal, properties in China will decrease to 41 percent of CapitaLand’s assets under management, from almost 50 percent.

The Temasek deal will also significantly boost CapitaLand’s presence in India, Lee said.

“We like India because of the tremendous size of the market, there are tremendous opportunities for us to deepen our capital and grow in this space,” he said. “Ascendas will give CapitaLand access to the fast-growing business park and logistics market in India with its S$2.6 billion of assets.”

CapitaLand CEO Puts Stamp on Developer With $4.4 Billion Deal

CapitaLand will pay half of the S$6 billion in cash and the remainder in new shares, which will be priced at S$3.50 apiece. The deal will require approval from independent shareholders. JP Morgan (S.E.A.) Ltd. and WongPartnership LLP are acting as sole financial adviser and legal counsel to CapitaLand respectively.

Stock in CapitaLand, currently suspended from trade, has rallied 5.1 percent this year after a 12 percent decline in 2018. The Straits Times Index is up 3.6 percent year-to-date.

“This development will dramatically deepen the scale of the property plays” on the Singapore exchange, Exotix Capital analyst Nirgunan Tiruchelvam said. “REITs and developers will have to raise their scale to compete with the likes of CapitaLand."

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