SINGAPORE - CapitaLand is acquiring Temasek subsidiary Ascendas-Singbridge (ASB) in a deal valued at $11 billion, including debt, to create Asia's largest diversified real estate group.

After the transaction, CapitaLand's combined total assets under management (AUM) will exceed $116 billion across more than 30 countries, and cover asset classes such as logistics/business parks, industrial, lodging, commercial, retail and residential. In addition, CapitaLand will surpass its 2020 AUM target of $100 billion, putting it among the top 10 real estate investment managers in the world.

Under the terms of the agreement, Temasek will receive $6 billion, which will be satisfied half in cash and half in new CapitaLand shares, boosting Temasek's ownership of CapitaLand from around 40.8 per cent to about 51 per cent upon the close of the transaction. Ascendas and Singbridge have a combined enterprise value of some $10.9 billion, comprising $6 billion of equity value and $4.9 billion of net debt and minority interest.

The new CapitaLand shares will be priced at $3.50 apiece, representing a premium of 11.3 per cent, or about $0.36, over CapitaLand's one-month volume-weighted average price of $3.1447. The consideration takes into account the adjusted net asset value of ASB, which includes the value of its fund management platform and the trading value of its three sponsored listed trusts. ASB has interests in, and manages, Ascendas Real Estate Investment Trust (Ascendas Reit), Ascendas India Trust (a-iTrust) and Ascendas Hospitality Trust (A-HTRUST).

Headquartered in Singapore, ASB's business presence spans 11 countries including Singapore, China, India, Australia, the United Kingdom and the United States. Over 80 per cent of ASB's $23.6 billion AUM is in business spaces. Its flagship projects include Singapore Science Park and Changi Business Park in Singapore, International Tech Park Bangalore and International Tech Park Chennai in India, as well as Dalian Ascendas IT Park and Singapore Hangzhou Science and Tech Park in China.

Among other things, the deal will enable a bigger footprint and increased competitiveness, CapitaLand and ASB highlighted in a joint press release on Monday (Jan 14). Thanks to the deal, CapitaLand's AUM will grow by 40 per cent and 9 per cent in Singapore and China respectively, with the value of the enlarged group's properties in Singapore to be worth $38.6 billion or 33 per cent of the group's AUM. The value of the group's properties in China will be worth $48.2 billion or 41 per cent of the group's AUM. This includes more than 60 million square feet of development pipeline.

In addition, CapitaLand said the deal will give it immediate scale and capabilities in the logistics/business park sector with over 100 properties in logistics/business parks and data centres. In India, ASB has built up a $2.6 billion AUM exposure in India's business space sector and launched a-iTrust as an established vehicle to own income-producing business space assets in India. ASB also expanded its footprint in the US last year, snapping up a portfolio of 33 suburban office assets in Portland, Raleigh and San Diego. In Europe, Ascendas Reit acquired 38 logistics properties in the UK last year.

Meanwhile, the combined group's number of CBD and suburban offices will grow from 39 to 83 properties across 10 countries, with a total gross floor area of nearly 27 million square feet.

The deal will also boost income growth. CapitaLand said its historical pro forma fee income will jump by over 40 per cent from $238 million to $337 million.

Mr Lee Chee Koon, president & group chief executive of CapitaLand, said: "Geographically, the deal strengthens CapitaLand's presence in our core markets of Singapore and China, while adding meaningful scale in India, the US and Europe. This deal immediately adds a portfolio of operating assets that contribute income today, while adding a sizeable pipeline of development projects for the future. Our fund management business will be strengthened by the enlarged platform. I am confident that this will allow the group to build a diversified and resilient company, one that can deliver sustainable returns above our cost of equity on a long-term basis."

Mr Wong Kan Seng, chairman of ASB, said: "The combined scale and expertise of the group will enable it to better capitalise on the opportunities arising from the rapid pace of urbanisation in the region. ASB's established relationships with local governments and business communities will also enable the group to develop urban solutions that effectively address local initiatives and requirements across the region. The greater benefits to be reaped through cross pollination across asset classes and geographies will create a strong and thriving platform for the group's future growth."

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The proposed transaction will have to be approved by CapitaLand's independent shareholders at an extraordinary general meeting, expected to be convened by first-half 2019. As the transaction will trigger the requirement for Temasek to make a mandatory general offer for the shares in CapitaLand that it does not already own, a whitewash resolution will be tabled at the EGM to seek the approval of CapitaLand's shareholders to waive their right to receive the offer from Temasek.

In a research note, OCBC Investment Research analyst, Andy Wong, wrote: "This proposed transaction will significantly increase CapitaLand’s scale and allow it to have a strong presence in the industrial and logistics markets. CapitaLand expects to reap synergies given the complementary nature of ASB’s business to CapitaLand’s."

OCBC has a "buy" call on the counter with a fair value estimate of $3.96, ahead of an analyst briefing that was due to take place on Monday morning.

The deal is expected to be completed by the third quarter of this year.