ERA owners exploring IPO for S’pore’s biggest property agency

Northstar Group said it is in the early stage of exploring an initial public offering of Singapore’s biggest real estate agency ERA Realty Network, which has turned out to be one of its top-performing investments thus far.

But the Singapore-headquartered private equity firm remains mum about when ERA will return to the local bourse since the delisting of its former listed parent Hersing Corporation four years ago.

Northstar’s co-founder and managing director Patrick Walujo said there is still some runway before the listing takes off, since its fund that bought into ERA has a 10-year lifespan that is extendable.

Its move in late 2013 to acquire ERA for about S$130 million following a spate of property cooling measures, especially the total debt servicing ratio in June that year, was seen as contrarian at that time.

“When we invested in ERA, it was not a good time for the whole property industry. If you look at the implied multiple at which we bought, the price was not cheap because the market was down. We could see that the earnings were going to go down from previous years, but we took a long-term view,” he told BT.

“The ability of the company to generate cash flow and increase market share even in a slow market is remarkable. The embedded value of the business has grown tremendously.”

In terms of transactions, the numbers do stack up. Last year, ERA closed over 52,000 property transactions worth S$19 billion.

In 2011, it closed over 35,000 transactions with a total property value of about $17 billion.

Compared to 2015, the 21.5 per cent growth in transactions clocked by ERA agents in 2016 surpassed the 6.7 per cent growth in total property transactions in the market last year.

In the new home sales market that saw a 6.5 per cent increase in transactions last year, ERA also outperformed the overall market by closing 48.9 per cent more new home sales than a year ago, said ERA chief executive Jack Chua.

“And this year, I am certain we will gain a bigger market share as ERA is involved in more launches in Singapore,” he said at the ERA conference on Tuesday, which marked its 35th anniversary.

ERA garnered close to 50 per cent market share each last year in both the private resale and HDB resale segments, and close to 25 per cent share each of the total private rental and HDB rental segments, he estimated.

The actual financial figures for 2016 are not publicly available yet, but Mr Chua said they were better than 2015. Its 2015 figures submitted to the Accounting and Corporate Regulatory Authority (Acra) showed a 35 per cent drop in net profit to S$8.45 million, despite a 7.3 per cent revenue increase to S$225.42 million.

Gross margin was about 4.4 per cent in 2015, down from 7.2 per cent in 2014.

Declining to reveal the rate of return Northstar is generating from ERA, Mr Walujo said “it is enough to make our investors smile”.

But when Northstar bought ERA from Hersing executive chairman Harry Chua in 2013, it had then expressed its plans to re-list ERA as a “pure-play” agency business on the Singapore Exchange within three years – which means the listing could have been last year.

Some industry observers have noted that the perceived delay may be due to unfavourable market conditions.

Mr Walujo’s explanation, however, suggests there are other factors.

“We are not under pressure to do IPO or to monetise our investment. This is a company that is performing well, so our philosophy is for investments that are doing well, we can hold on for long-term,” he said.

But the intention to list remains clear.

“Bringing ERA public will have multiplier benefits not just for shareholders but for the agents to be part owners as well if they participate in the IPO,” Mr Walujo added.

About 15 management personnel and division directors now own some 20 per cent of ERA.

Mr Chua attributed ERA’s outperformance to the market last year to its focus on training and brokering deals for sellers and landlords.

ERA is also able to tap its franchise network for referrals from overseas buyers looking for Singapore properties.

The franchise rights relating to the “ERA Real Estate” brand in the Asia-Pacific – renewable every 30 years – was also sold to Northstar in 2013, with Mr Chua responsible for managing the franchise.

This regional franchise now spans Singapore, Thailand, Malaysia, Indonesia, China, Taiwan, and Korea – with Singapore being the largest and most profitable.

Potential franchisees have also been identified in Cambodia and Vietnam.

The sale of ERA and the regional franchise rights in 2013 by Mr Harry Chua came within a year after he took Hersing private.

The 70-year-old had brought the ERA brand into Singapore in 1982 when it was still an unknown US name.

From a humble outfit at Cuppage Centre with only three salespersons, ERA has grown into a 6,000-strong agency with five offices islandwide.

When Northstar acquired ERA and the Asia-Pacific franchise rights in 2013, one of the conditions was the return of Jack Chua, who was a key dealmaker at Hersing, to head the agency.

Mr Walujo pointed out that one common thread in Northstar’s investments – including ERA, Singapore-listed Nera Telecommunications, and the soon-to-be privatised Innovalues – are companies with leading market position backed by a strong management team.

With over US$2 billion in committed equity capital, Northstar has invested into about 30 companies in the past decade, mainly in Indonesia.

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