IPP Details
 
REA’s iProperty acquisition would boost its South East Asia’s penetration: iProperty Group Ltd (ASX: IPP) has major property portals at Malaysia, Hong Kong, Thailand and Indonesia. REA is seeking to expand its penetration and leadership in other markets apart from Australia, and therefore proposed for an acquisition of iProperty Group which has solid presence in South East Asia. With this acquisition REA would be able to leverage the booming South East Asia market opportunity which would be driven by attractive macroeconomic factors coupled with solid growth across the regions. Rising populations, growing GDP per capita, focus on online advertising against offline advertising would drive the real estate market in the region. Meanwhile, IPP delivered a solid third quarter and reported a cash collections rise by 67% to $8.6 million as compared to the corresponding quarter in 2014. In spite of seasonal impact during the quarter, the group delivered cash collections improvement across all markets. Meanwhile IPP stock delivered outstanding performance during this year generating year to date returns of 41.54% and rallied over 14.93% in the last four weeks (as at November 10, 2015).
 


iProperty Market Scenario (Source: Company Reports)
 
Market opportunity with IPP acquisition: Based on the survey conducted by iProperty Group, rising property prices led to the improved demand for affordable housing. The survey findings indicated that the young population and labor force between the ages of 21 to 30 years old are interested in the property market but are caught up with the high property prices. On the other hand, the Malaysian property continued to be strong, with growing demand from overseas says IPP CEO. Survey respondents reported that they are seeking for properties which are priced below MYR500,000 to MYR1 million and are preferring condominiums. Declining Ringgit also led to a decrease in the property prices in Malaysia and subsequently attracted overseas buyers. According to the survey, Singaporeans seeking to purchase the property in Malaysia has increased as compared to six months earlier given the attractive prices in Malaysia and the region being a favorable destination for retirement.
 


iProperty leadership across its markets (Source: Company Reports)
 
Deal Highlights: The implementation of the agreement would enable iProperty Group shareholders with a cash consideration of $4.00 per share. Alternatively, IPP shareholders would get $1.20 in cash and 0.7 shares in the newly formed unlisted public entity with indirect interest at IPP. REA would be funding the iproperty acquisition via its raised debt facilities of $480 million, along with its current cash reserves. Meanwhile, based on the company reports, REA’s leverage would be over 1.5x net debt / EBITDA on a pro forma FY15 basis. On the other hand, REA estimates a lower leverage ratio by the time the transaction would be finished. REA estimates to end the acquisition by first quarter of 2016 and iProperty would continue to be as an associate till the acquisition is finished. IPP estimates a minimal impact on its EPS during fiscal year of 2016 and on a pro-forma basis the acquisition would be slightly dilutive while IPP estimates to maintain ongoing growth track in the coming periods as well.



iProperty Market Penetration (Source: Company Reports)
 
REA’s ongoing domestic performance: REA reported a revenue growth of 21% on a year over year basis to $146 million for the September quarter of 2015 while reported an EBITDA increase of 30% from core operations to $82 million during the period. The group’s Australia site, realestate.com.au continued to be a dominant player across all devices and developed highly engaged property audience during the first quarter of 2016. The site’s average monthly visits during the first quarter of 2016 improved by 33% year over year to 42.7 million while the consumers spent 257.3 million minutes a month on realestate.com.au’s main and mobile site. The site continued to outpace the average monthly time of the number two portal site by 5.5 times. The group’s international markets growth momentum is also ongoing with the realtor.com at US being the number two site. REA is enhancing its Asian market opportunity via acquisition of IPP. REA’s Europe growth momentum around listings is ongoing and it continued to enhance the audience and products range during the quarter. As a result, the shares of REA continued to deliver a decent performance by generating around 10.07% increase in the last three months and over 5.63% rise in the last four weeks (as of November 10, 2015).
 
A general take: REA’s offer looks worth a shot given IPP’s strength in early stage growth markets. There is a very low probability that a competing offer may arise in view of REA’s blocking stake in IPP. Wait and watch approach may help reveal further insights going forward.

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