Real Estate

Japanese apartment builder logs $400m loss on code violations

Leopalace21 may have to relocate thousands of tenants in buildings with code violations. (Photo by Toshiki Sasazu)

Leopalace21 may have to relocate thousands of tenants in buildings with code violations. (Photo by Toshiki Sasazu)

Repair and tenant relocation costs erode Leopalace21's profits as vacancies rise

TOKYO -- Rental unit provider Leopalace21 suffered a record loss for the April-December period as earnings were squeezed by a series of building-code violations at its properties, the company announced Friday.

The Japanese company reported a nine-month net loss of 43.9 billion yen ($400 million) -- its first loss for the period in seven years. Behind the red ink was an extraordinary loss of 43.4 billion yen associated with such expenses as repair work and relocation of affected tenants. When losses on property sales are factored in, the extraordinary charges totaled 51 billion yen.

Leopalace21's capital stood at 106.9 billion yen at the end of December, down 32% from a year earlier. Sales for the three quarters fell 2% to 376.3 billion yen, while operating profit plunged 65% to 6.5 billion yen.

The company, which trades on the Tokyo Stock Exchange's first section, announced last May problems with partition walls in apartments it has constructed. In a follow-up investigation, it uncovered potential defects in fire resistance and noise insulation for more than 1,300 buildings throughout Japan.

Affected apartments will not be available for occupancy until repair work is completed. Consequently, more and more units have become vacant as new problems were found, eroding the company's earnings power from core operations.

For the full year through March, the company projects its first annual net loss in eight years, ranging between 38 billion and 40 billion yen, depending on how quickly repair work is completed.

Source: Asian Review, 9 Feb 2019

CapitaLand, seeking scale, buys real-estate group for $4.4bn

Besides Singapore and China, Capitaland has a large presence in countries such as Vietnam and Indonesia. © Reuters

Besides Singapore and China, Capitaland has a large presence in countries such as Vietnam and Indonesia. © Reuters

SINGAPORE (Nikkei Markets) -- Singapore property giant CapitaLand will buy a group of companies from state investment firm Temasek Holdings for $4.4 billion in a deal that will create Asia's largest real-estate fund manager.

CapitaLand's purchase of Ascendas-Singbridge, which manages several listed real estate investment trusts, follows recent mergers in Singapore's property fund management industry as it tries to build scale and expand globally.

In September, property developer OUE bought a controlling stake in Bowsprit Capital from sister company Lippo Karawaci to create a single asset management platform, while two property trusts, ESR-Reit and Viva Industrial Trust, merged in October.

The CapitaLand-Ascendas-Singbridge deal is the largest property transaction in Singapore since a group of Chinese investors bought global warehouse operator GLP in a deal worth $16 billion dollars, according to data compiled by Dealogic. That deal was completed in January 2018.

"Even though we are global, our exposure is mainly in Singapore and China. This particular transaction will give us meaningful scale in key growth markets like India," CapitaLand group CEO Lee Chee Koon said at a briefing.

So far, CapitaLand, Southeast Asia's largest developer, has focused on residential housing, malls, offices and serviced residences. It currently owns or manages over 92 billion Singapore dollars ($68 billion) in real-estate assets. Besides Singapore and China, it has a large presence in countries such as Vietnam and Indonesia. Its listed property funds include CapitaLand Mall Trust and CapitaLand Commercial Trust.

Temasek unit Ascendas-Singbridge has S$23.6 billion in property assets under management, mainly in industrial properties such as business parks, warehouses and data centers. It is active in Singapore and China and counts India, Australia, the United Kingdom and the U.S. among its major markets. Its listed REITs include Ascendas Real Estate Investment Trust and Ascendas India Trust.

The combined entity will be the world's ninth-largest property fund manager, ahead of companies like Principal Real Estate Investors and AXA Investment Managers - Real Assets.

"Our fund management business will be strengthened by the enlarged platform," Lee said, adding that the company would have more options to decide how to deploy capital between emerging and developed markets.

Under the terms of the agreement, CapitaLand will pay Temasek S$3 billion in cash and another S$3 billion in new CapitaLand shares valued at S$3.50 a share, or 7% above the last traded price.

The Singapore developer will also assume responsibility for some S$4.9 billion in net debt and minority interest, giving the deal an enterprise value of nearly S$11 billion.

Temasek, which is wholly owned by the Singapore government, will own 51% of CapitaLand after the transaction is concluded, up from 40.8%.

Andrew Lim, CapitaLand's chief financial officer, said at the briefing that the company would not issue new shares to fund the Ascendas-Singbridge acquisition beyond those to be issued to Temasek, which means there would be no further share dilution.

Lim also indicated that the high debt level as a result of the acquisition would be temporary. CapitaLand would work to reduce its debt-to-equity ratio, from 0.72 after the deal completes to 0.64 by the end of 2020, through asset sales and utilizing cash from operations.

The deal requires approval from CapitaLand's minority shareholders at an extraordinary general meeting to be held before the end of June.

Source: Nikkei Asian Review, 14 Jan 2019

CK Asset's hotel-to-housing project move seen lifting return

The redevelopment plan comes at a time when home property in Hong Kong prices have begun to slide from record highs. © Reuters

The redevelopment plan comes at a time when home property in Hong Kong prices have begun to slide from record highs. © Reuters

HONG KONG (Nikkei Markets) -- CK Asset Holdings has submitted a proposal to convert a hotel in Hong Kong into a residential project in a move analysts expect to be more profitable for the property major while improving supply in one of the world's most expensive housing markets.

The company, a member of billionaire Li Ka-shing's sprawling empire, wants to redevelop the Harbour Plaza Resort City hotel, a twin-tower property with 1,102 rooms in the city's Tin Shui Wai area, into a larger project for residential use. The proposal envisages the property's redevelopment "within a very short time frame" into two blocks of 53 floors each and a total of 5,000 residential units, according to a filing with the Town Planning Board. At present, the hotel's structure comprises of 27 floors in tower 1 and 28 floors in tower 2, according to the hotel's reservations helpdesk.

The move symbolizes efforts to make better, and a more profitable, use of land resources in a city that has been notorious for surging home prices and shrinking living spaces. Last year, luxury hotels group Mandarin Oriental International announced plans to close the Excelsior, its popular waterfront hotel in the city, and redevelop it into a mixed-use commercial building at a cost of $650 million over a six-year period.

"Land resources in Hong Kong are extremely scarce and the proposal would also represent a more optimum and efficient use of land resources," Harbour Plaza Resort City said in its filing.

The Harbour Plaza Resort City hotel markets the latest effort by CK Asset to redevelop an existing hotel. The company has already received an approval from the city's Buildings Department to redevelop its Harbourview Horizon hotel, and is awaiting a similar approval for the Harbourfront Horizon hotel, according to local media reports. Both properties are apartment-style hotels.

Valuations for hotels are lower than they are for commercial and residential assets, and the redevelopment would facilitate a better use of the land plot, according to Hong Kong property sector analyst Jeff Yau at DBS Bank.

"We think Hong Kong will see more and more hotels try to change the way they use their land," Yau said.

CK Asset's hotel and serviced suite portfolio comprised of more than 20 properties, with more than 16,000 rooms for guest accommodation as of June 30. The company posted a 65% year-on-year increase in net profit for the first half of 2018 to HK$24.75 billion, helped by the sale of some investment properties, while total revenue fell 19.2% to HK$24.11 billion. It had a land bank of 5 million square feet in Hong Kong and 106 million square feet in mainland China as of June 30.

The redevelopment plan comes at a time when home property prices have begun to slide from record highs. Residential prices in the city have dropped 5.9% between July and early December, and were expected to fall a further 10% in 2019, according to commercial real estate services provider Cushman & Wakefield.

CK Asset's shares climbed 1.1% to HK$63.20 ($8.06) as of 3:32 p.m. in Hong Kong on Wednesday, outperforming many peers. Sun Hung Kai Properties gained 0.3% and Henderson Land Development added 0.6%. The city's benchmark Hang Seng Index was up 2.1%.

Thomas Lam, an executive director at property agency and consultancy Knight Frank, said the redevelopment would offer a "much better" project return to the group and also fits government programs to increase the supply of homes.

Lam estimates the residential units to be available for sale in four to five years, and fetch a price of at least HK$14,000 per square foot, with the plot's access to a light rail station and commercial facilities as well as proximity to the Chinese city of Shenzhen among favorable factors.

Source: Nikkei Asian Review, 9 Jan 2019