In Asia’s real estate market, deal-making just reached a record and more is to come, with undervalued Singapore-listed trusts expected to become takeover targets.
Property deals in China and its neighbours amounted to US$34 billion (S$43.2 billion) last quarter, Bloomberg data show, a tally that includes the 10.6 trillion won (S$12.6 billion) purchase of a site in Seoul’s Gangnam district by a Hyundai Motor-led group and the A$2.6 billion (S$2.9 billion) takeover by Singapore’s Frasers Centrepoint of the Australand group Down Under.
Singapore-listed CapitaRetail China Trust, with 10 malls in eastern China, is among the next possible targets as it trades below the US$1.7 billion estimated value of its assets, said analysts at Standard Chartered. Saizen REIT, another Singapore-listed trust that owns about 5,500 apartments in Japan, is also undervalued by that measure.
For a global buyout firm or Hong Kong developer, buying Chinese malls would be a way to profit as Asia’s largest economy becomes more consumer-centric, property consultancy CBRE said. “Being in retail is a natural way to front-run that trend. We see very strong demand in all the key gateway markets for good-quality real estate,” said Mr Marc Giuffrida, CBRE’s Singapore-based executive director for global capital markets in Asia.
Representatives for CapitaRetail and the company that manages Saizen, Singapore-based Japan Residential Assets Manager, declined to comment on the prospects for any takeover.
Last quarter’s record deals for real estate companies and investment trusts in Asia pushed this year’s total to US$82 billion, Bloomberg data showed. Beijing, Tokyo and Shanghai were the top destinations for commercial property investments in Asia in the first half of 2014, property consultancy Cushman & Wakefield said. China alone attracted 73 per cent of the total.
“Asian consumers have continued to expand spending, creating vast incentives for continued investments,” said Mr Priyaranjan Kumar, Singapore-based regional director of capital markets at Cushman.
CapitaRetail’s properties draw 73 million shoppers a year, more than three times the population of Beijing, the company’s website says. Almost every square metre of CapitaRetail’s mall floor space is leased, with tenants including global brand names like Wal-Mart and fast-food chain KFC.
“Definitely, it could be a target,” said Mr Desmond Chua, an analyst at CMC Markets in Singapore, said of the property trust. “It’s an appealing vehicle” to tap Chinese consumers, he said.
Earnings before interest, taxes, depreciation and amortisation at CapitaRetail will jump 52 per cent to about S$147 million in 2016 from last year, according to analysts’ estimates compiled by Bloomberg. Rental revenue at CapitaMall Grand Canyon in Beijing, the company’s biggest shopping centre, may jump 26 per cent between 2014 and 2016 as tenants sign up for more expensive leases, StanChart said.
Shares in CapitaRetail have climbed nearly 19 per cent this year after closing 2.3 per cent higher at S$1.58 yesterday, giving the company a market value of S$1.3 billion. That compares with StanChart’s estimate of S$2.1 billion, or S$2.58 a share, for CapitaRetail’s revalued net asset value. Potential acquirers include private equity firms and real estate developers, CBRE said. CapitaLand, CapitaRetail’s largest shareholder with a 19 per cent stake, is also a possible buyer, StanChart said.
Saizen REIT, which owns apartments in cities including Tokyo and Sapporo, also may attract suitors because it’s so undervalued, said Ms Regina Lim, an analyst at StanChart in Singapore. About 91 per cent of Saizen’s units are occupied, its website says.
Saizen shares have fallen 2.7 per cent this year after closing 1.1 per cent higher at 90.5 Singapore cents yesterday, compared with its net asset value of S$1.22 a share at the end of June.
Real estate prices across Japan have risen about 20 per cent since Prime Minister Shinzo Abe took office about two years ago, according to an estimate by Deutsche Asset & Wealth Management. Property investment in Japan rose 70 per cent to ¥4.6 trillion yen (S$54.2 billion), the highest level since March 2008, in the 12 months ended March, according to the asset manager. Residential prices in Japan’s three largest metropolitan areas increased for the first time in six years, the government said last month.
Still, property owners and developers in Japan face the prospect of waning demand from a population that has shrunk every year since 2008, according to data from the International Monetary Fund. More than one in four people in Japan are older than 65, the highest proportion in the world, Bloomberg data show.
And in China, some investors are concerned that economic expansion will slow. Growth will probably be 7.3 per cent this year, a Bloomberg survey of economists showed last month. It would be the slowest pace since 1990.
However, that may not prevent bids for undervalued property companies such as CapitaRetail and Saizen.
“We could see more deals,” said Mr Terence Wong, head of research at DMG & Partners Securities in Singapore.
Source : Today – 10 Oct 2014