SINGAPORE (Jan 15): CapitaLand on Monday announced it is acquiring all the shares in two subsidiaries of Ascendas-Singbridge (ASB) from Temasek for $11 billion to create the largest diversified property group in Asia.
However, the deal is still subject to an extraordinary general meeting (EGM), which will be convened in 1H19.
See: CapitaLand and Ascendas-Singbridge in $11 bil deal to create Asia’s largest diversified real estate group
Analysts are maintaining a positive view on this transaction, with DBS Group Research calling a “buy” on CapitaLand with a target price of $3.62.
Pricing new shares at a premium to the stock’s current share price is a positive, as it implies that the stock remains under-valued at 0.7 times P/NAV.
In a Tuesday report, analyst Derek Tan says, “While we note that the issue price is below CapitaLand’s NAV, we do see the stock closing the gap post announcement of this deal.”
The analyst also views this deal as more complementary than synergistic as both groups’ entities are fairly complementary with minimal overlaps.
The widening of CapitaLand’s scope to include more “new economy” real estate sectors in the business parks and sectors could make the overall group more “future proof” as it navigates through the new world. ASB and AREIT are front runners in this space in Asia and will provide valuable experience.
Upon a successful deal, the combined entity will make CapitaLand the leading REIT manager in Singapore, expanding its number of REITs and private equity funds to 31.
“Most importantly, ASB will allow the group to expand its exposure and capabilities in fund management to new asset classes and geographies. Over time, we see more opportunities for differentiated products and mandates to be launched to attract new capital partners,” says Tan.
OCBC Investment Research is also mantaining its "buy" call on CapitaLand with a fair value estimate of $3.96.
In a Tuesday report, analyst Andy Wong Teck Ching says, "Although pro forma NTA per share would have declined 7.6% to S$3.88, we opine that this proposed transaction will significantly increase CapitaLand’s scale in its core markets, while allowing it to penetrate new growth geographies and sectors. This will enable CapitaLand to compete more effectively on the global real estate scene.
Similarly, Phillip Capital is reiterating its “accumulate” recommendation on CapitaLand with a target price of $4.00.
If the deal is on, CapitaLand will have new business vertical of industrial and logistics, which will diversify its revenue streams and bolster its recurring income, says Phillip.
In addition, the group will increase its exposure in emerging markets, such as India, which it previously did not have an investment management platform, with the acquisition of Ascendas India Trust.
In a Tuesday report, Phillip analyst Tara Wong says, “We have always favoured CapitaLand as it builds up its recurrent earnings (comprising close to 90% of its EBIT, for 9M18), which will be further boosted from this transaction, where operating PATMI from ASB will amount to about $300 million.”
However, the transaction may be immediately accretive to EPS and RPE, this will dilute NAV to 4%. CapitaLand’s management has noted this concern and has expressed confidence in boosting its NAV, mainly through the combined fund management platform and development pipeline.
CapitaLand is on track to meet its 2020 $100 billion AUM target ahead of time, which the analyst views as a positive in the long term. The group’s next step would deleveraging $3 billion to bring its balance sheet back to a 0.64 times leverage ratio by 2020, which is when more asset recycling could be seen.
In an unrated report on Monday, analyst Krishna Guha of Jefferies believes the deal underscores the importance of scale and diversification in the real estate sector, while highlighting the growth potential and associated premium in new economy related sub-sectors, such as logistics and data centres.
The research house has maintained its “buy” ratings on Ascendas REIT, Ascendas India Trust and CapitaLand Commercial Trust.
As at 11.45am, shares in CapitaLand are trading 1.83% higher at $3.33 or 0.7 times FY19 book with a dividend yield of 4.3%.
