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CapitaLand acquires portfolio of 16 multifamily properties in the United States for US$835 million

Property Markets / Transactions

United States of America

Sep 20 2018

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CapitaLand, through its wholly owned international business unit CapitaLand International, has acquired a portfolio of 16 freehold multifamily properties1 for US$835 million (S$1.14 billion2) in the United States (U.S.). It marks the Group’s foray into the country’s multifamily asset class to ride on the growing demand for long-term rental housing.

The portfolio comprises 3,787 apartment units, all located in well-connected suburban communities of the metropolitan areas of Seattle, Portland, Greater Los Angeles and Denver. The price per unit of the portfolio is US$220,000, which is consistent with market transactions.

These Class B 3 properties in the suburban regions are operating at over 90% average occupancy, with average length of stay of about two years. They are well connected via highways or commuter rail systems, and enjoy easy access to neighbourhood amenities like supermarkets, malls, schools and nature reserves. They see strong demand from a diverse mix of middle-income and skilled professionals working in the surrounding employment hubs.

These suburban regions have experienced growing employment rates and are home to government agencies, companies in the technology, energy, healthcare and life sciences industries, as well as multinational corporations such as Boeing, Microsoft, Starbucks, Amazon and Nike. These professionally managed properties offer a myriad of facilities such as swimming pools, fitness centres, dog parks, playgrounds and clubhouses, all in an expansive garden-style compound.

Mr Lee Chee Koon, President & Group CEO of CapitaLand Group, said: “This latest acquisition in the U.S., the world’s biggest economy, would expand CapitaLand’s global investment portfolio, diversify our business outside of our two core markets of Singapore and China and allow us to grow new businesses. It also enables us to diversify our investment property portfolio into developed markets as we continue to scale up our presence in our core emerging markets of China and Vietnam. As a leading global real estate player, it is important for CapitaLand to create value for our stakeholders with an optimal portfolio mix which is efficient and high returning, through a balanced and meaningful allocation between developed and emerging markets.”

“The multifamily sector in the U.S. is broad, scalable and a growth sector marked with long-term secular trends. Widely regarded as one of the most resilient and liquid institutional real estate asset classes in the U.S., this multifamily portfolio offers attractive risk-adjusted returns for CapitaLand. While we value add to this portfolio of freehold operating assets through asset enhancement post acquisition, we will also be looking out for more opportunities to build up a sizeable platform and strengthen our expertise in this asset class. As the portfolio grows, we will have the option to spin off these assets into investment vehicles and partnerships. Beyond expanding the long-term rental housing platform in the U.S., a market which we have ventured into since 2015, we also see potential to build this business in other fast-growing markets such as China.”

The multifamily sector in the U.S. has the highest average returns in the commercial real estate asset class, offering close to 10%4 annually in the last three decades. Healthy economic fundamentals, job growth, net-in migration trends, low home ownership rates and the booming millennial generation’s preferences for geographic mobility and community living in the suburban markets have driven strong demand for rental apartments.

Mr Gerald Yong, CEO of CapitaLand International, said: “We are acquiring a well-diversified portfolio of multifamily assets across several suburban markets in a single transaction, each regional market with a critical mass of over 1,000 units. With leases that are generally renewed annually, we can expect to gain from the rental uplifts after the refurbishment of the portfolio that will take place in phases over the next few years. The stable, reliable cash flows of these Class B multifamily properties make this suburban portfolio more attractive than the higher-priced urban core segment. Situated in well-established, well-connected rental communities, this portfolio of low-rise and garden-style properties continue to be a strong draw for middle-income and skilled professionals working in surrounding employment hubs.”

CapitaLand first entered the U.S. market in August 2015. CapitaLand has set up an office in New York to oversee the Group’s investments and to build up its market expertise and capabilities in the country. Through Ascott and its real estate investment trust, Ascott Residence Trust (Ascott Reit), the Group has acquired five properties with over 1,260 units in Manhattan, New York and Silicon Valley. On top of its portfolio of hotels in the U.S., Ascott also owns a majority stake in Synergy Global Housing (Synergy), a leading accommodation provider in the market, which offers apartments for corporate lease. Synergy has close to 1,500 units in the U.S. with a strong presence in the West Coast, including Los Angeles, Orange County, San Diego, Seattle as well as New York.

This latest multifamily portfolio acquisition will more than double CapitaLand Group’s investment in the U.S. to over US$1.5 billion, as well as its presence in the market to more than 6,500 units.

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