Singapore-based real estate developer CapitaLand has acquired 100% of Orient Overseas Developments Limited (OODL) for $2.2 billion from a company controlled by the family of former Hong Kong chief executive Tung Chee-hwa.
The acquisition will double CapitaLand's China property portfolio to 2.8 million square metres and will also increase the China weighting in its portfolio to 36%, in line with the Singaporean firm's stated strategy.
OODL owns seven sites in Shanghai, Kunshan and Tianjin. The portfolio comprises a total gross floor area of 1.48 million square metres, of which about 87% is in Greater Shanghai, including Kunshan, and the remaining 13% in Tianjin. By property type, residential is the largest component (56%), followed by office (19%), serviced apartments/hotels (17%) and retail (8%), the Singapore-based developer told analysts.
All the sites are next to or near a mass rapid transit (MRT) rail line and the major assets are in the city centre where there is currently very limited supply of such land in the market, said CapitaLand, adding that most of the sites have planning and land use approval and some sites also have construction permits in place.
CapitaLand is effecting the acquisition through a wholly owned subsidiary, CapitaLand China (RE) Holdings, which will buy 100% of OODL from Hong Kong-listed Orient Overseas International Limited (OOIL). OOIL is the company controlled by the Tung family.
The consideration of $2.2 billion is split into a payment of $1.154 billion for the share capital of OODL and $1.046 billion for the transfer of a shareholder loan given by OOIL to OODL. The price takes into account the portfolio value of the sites, which stands at $2 billion, and cash of approximately $262 million on the books of OODL.
CapitaLand will also be taking over OODL's existing staff and said it is confident of a smooth transition given its past experience in integrating staff post-acquisition.
CapitaLand intends to fund the acquisition from its existing cash holdings, part of which was raised from the proceeds of the $1.78 billion initial public offering of CapitaMalls Asia in November last year. Some specialists commented that CapitaLand shareholders who were hoping to be rewarded with a special dividend following the CapitaMalls Asia spinoff would be disappointed that the cash is instead being deployed towards an acquisition.
The acquisition is expected to be completed by the end of the first quarter and is subject to shareholder approval. The controlling shareholders of OOIL, representing 68% of the share capital, have committed to vote in favour of the deal.
"[This acquisition] fits into our stated goal of growing our asset size in China from the present 28% of total assets to 45% over the next five years as we remain very confident of the long-term future of the country," Richard Hu, chairman of CapitaLand Group, said in a written statement commenting on the acquisition.
CapitaLand has a diversified property base in China comprising residential property, mixed developments, serviced residences and shopping malls.
OOIL said in a Hong Kong stock exchange filing that it expects to post a profit of around $1.06 billion from the sale of the property portfolio, which it will deploy towards strengthening its core container and logistics businesses. Orient Overseas is retaining a 7.9% stake in Beijing Oriental Plaza, a hotel and office complex in Beijing, and the Wall Street Plaza in New York City. Morgan Stanley worked with Orient Overseas on the deal.