(Sept 25): APAC Realty could provide investors with a means of gaining exposure to a large and thriving property agency just as the local property market is showing signs of taking off. But the growing popularity of online property search platforms could be a long-term disruptive challenge to the company.
APAC Realty is selling 48.9 million shares at 66 cents each in an IPO. About 4.4 million shares will be sold to retail investors, while 44.5 million placement shares will be sold to cornerstone investors.
An over-allotment option of 9.7 million shares has been granted to its underwriter DBS Bank to act as a stabilising manager. At its IPO price, APAC Realty will have a market value of $234.4 million of 14.7 times its earnings last year.
APAC Realty owns two property agency brands: It holds the ERA regional master franchise for Asia-Pacific and the Coldwell Banker Franchise in Singapore. It also owns Realty International Associates, which operates training programmes and courses for real estate agents to prepare them for professional certification exams, as well as valuation work.
The company’s main property agency business was once a unit of Hersing Corp, a public-listed company that was taken private in 2012. Private equity firm Northstar Group then led a management buyout of the property agency business.
Since then, the property agency business has been strengthened, and it is returning to market as a more focused company than Hersing, says Jack Chua, CEO of APAC Realty.
“Hersing consisted of a number of brands besides ERA. There was also Western Union, StorHub, and it was spread over different industries,” he says. Under Northstar, ERA consolidated itself and built on its strengths, he adds.
Notably, as at March 31, ERA had 6,233 agents, up from 4,800 in 2013. This growth was achieved organically, according to Chua. “We may recruit new agents or experienced agents from other agencies, but never in our history have we merged or acquired companies.”
Now, he figures the time is right to return to the public market.
“Back in 2013, with cooling measures and [the total debt servicing ratio rules], the [property] market had lower activity, and prices and the number of transactions had dropped quite significantly,” he says, alluding to the layers of macroprudential measures imposed by the government to curb excessive speculation in the property market.
However, since late last year, sentiment in the property market has been turning more positive.
“So, we feel this is an opportunity for investors to come in,” Chua says. “We have now proven over the years that we have grown the business, and we should get listed as the timing is right,” he adds.
For 1Q2017 ended March 31, APAC Realty reported a 19.7% y-o-y rise in revenue to $65.9million, while earnings jumped 109.3% to $4 million.
Chua says that the listing of APAC Realty will help burnish the company’s image in the property sector.
“The listing will help us enhance our reputation,” he says, adding that listed companies are seen to have strict financial compliance standards. “So, the customers and agents will have more confidence in the company because of the financial stability we have.”
He also emphasises that the timing of the listing was not set by Northstar, and that the private equity firm did not have firm plans to exit its investment in APAC Realty. In fact, following the IPO, Northstar will still own 74.7% of APAC Realty through Asia Pacific Realty Holdings.
“This is a very strong demonstration of its intention to grow the company. That is why it is taking the listing route,” says Chua.
APAC Realty will raise about $58.2 million from its IPO, which it will use to strengthen and expand its presence in Singapore, expand its range of services and regional presence, and enhance its technological capabilities.
Chua says having a regional presence will become more important for property agencies like APAC Realty in future. “I foresee that foreigners may want to come into the Singapore property market in the future. With [a regional] platform, I am able to channel customers overseas to Singapore. Or, if you are buying from country X and I am established in country X, I am able to provide better insights compared with [other] Singapore agents,” says Chua.
As little more than middlemen, will property agents eventually get disrupted out of their business by technology?
Chua acknowledges that technology is reshaping the industry by making the sourcing of properties more efficient and simplifying the administrative elements of property transactions.
But he insists that a human touch will always be needed for real estate transactions. And, the emergence of property search portals is really making agents more productive.
“Before property portals, if you wanted to look for a property, it was very hard, combing through newspapers,” Chua says. “Now it’s so easy. Just search for it online.”
But the customer will then call the agent to view the property. “You’ll still want to see the property physically, and you’ll still call the agent.”
But what exactly is the role of the property agent? Quite simply, it is to provide the human touch that is necessary to ensure that a deal gets done. “I like to give this example: If your unit is next to a lift — as a seller, you’ll say that it’s convenient. But as a buyer, you’ll say that it is so noisy. So, you still need a human to moderate expectations.”
