Stockland Takes 19.9% Australand Stake as CapitaLand Exits

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Stockland, Australia’s biggest diversified property trust, bought a 19.9 percent stake in Australand Property Group as Southeast Asia’s largest developer CapitaLand Ltd. sold the last of its holdings.

Stockland plans to explore “strategic opportunities with Australand” after purchasing 115.2 million shares in the company at an average price of A$3.78, a 2.8 percent discount to yesterday’s closing price, according to a regulatory statement. CapitaLand said it will use the proceeds from the sale of its A$849 million ($775 million), 39 percent stake in Singapore and China, and to repay debt.

The A$435.5 million purchase is the latest in a number of transactions among Australia’s property trusts. Chief Executive Officer Mark Steinert, who joined Stockland in January 2013, has said he wants to increase the company’s exposure to retail and industrial properties. Australand also offers a landbank that would assist Stockland’s residential development business.

“Australand has a diverse and complementary portfolio of assets, including a quality industrial portfolio and medium density residential projects that are well aligned with our strategy,” Steinert said in the statement.

Shares in Australand rose 2.3 percent to a more than five-year high of A$3.98 at the close in Sydney trading. Shares in Stockland fell 2.6 percent to A$3.75, while CapitaLand dropped

0.7 percent to S$2.72 at the close in Singapore trading.

A block trade of 135.32 million Australand shares was sold at A$3.72 each, a 4.4 percent discount to yesterday’s closing price of A$3.89. Another parcel of 90.9 million shares was sold at A$3.80 each, a 2.3 percent discount.

Full Takeover

“Overlapping businesses don’t immediately mean a combination makes sense,” Morgan Stanley’s Australian property analysts, John Meredith, Lou Pirenc and John Lee, said in a research note. Stockland “cannot extract any synergies, either through cost reduction or restructuring Australand’s debt, without launching a full takeover for the group, which could be quite expensive.”

Stockland’s stake in the Australian developer is just below the 20 percent threshold that would trigger a takeover bid under Australian regulations.

“I expect a full bid to be forthcoming in the not too distant future,” Winston Sammut, who helps oversee about A$100 million, including Stockland shares, as managing director of Sydney-based Maxim Asset Management, said by phone. “Strategically, Australand is a fit for Stockland, which has exposures to all segments, industrial, commercial and residential.”

Favorable Market

CapitaLand in November sold a third of its 59 percent stake or 115.7 million shares at A$3.685 each through Citigroup Inc. GPT Group, a Sydney-based diversified property trust, in May dropped an offer to buy Australand’s commercial and development units after failing to agree on a price.

“We have decided to divest our remaining stake in Australand now as market conditions are favorable and Australand’s share price has performed strongly in the past few months,” CapitaLand President Lim Ming Yan said in a statement.

Management Re-Focus

“CapitaLand is trying to improve its return on equities and the business in Australia had lower ROEs,” Singapore-based Vikrant Pandey, an analyst at UOB Kay Hian Pte, said. “CapitaLand feels there are better opportunities in China to deploy these funds.”

Dexus Property Group, Australia’s biggest listed office landlord, and partner Canada Pension Plan Investment Board won a takeover battle for an office fund managed by Commonwealth Bank of Australia when GPT said in January it wouldn’t raise its offer.

Overseas investor interest in Australian property could weaken in 2014 after the country attracted a significant volume of foreign investment over the past few years, CBRE Group Inc. said in its 2014 investor intentions survey.

Residential prices in Australia rose 9.5 percent in February from a year earlier, according to the RP Data-Rismark home value index.

The selldown by CapitaLand triggered a change of control under Australand’s $170 million United States private placement note, giving note holders a right to put their notes to Australand. Australand has begun discussions with the note holders, according to a separate statement.