The rise of SPACs and its relevance to the real estate sector

The third instalment of the Mapletree-SMU Forum was held in a hybrid format at the SMU Yong Pung How School of Law on 20 January 2022.  Over 200 students, industry professionals, real estate practitioners and members of the public attended the forum, themed “Is a SPAC listing suitable for a real estate company?”.

A Special Purpose Acquisition Company (SPAC) is a company that has no commercial operations and is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring or merging with an existing company. They are often referred to as blank cheque entities which exist to acquire or merge with a promising private company to take it public without an initial public offering (IPO). In 2020, SPACs led by the United States markets, saw a bumper year, and in the first quarter of 2021 towered over traditional IPOs by four times. This has led to a wave of interest in SPACs throughout Asia.  

At the forum, distinguished panellists discussed the benefits and risks of SPAC listings for real estate companies. They included Mr Ronald Tan, Vice President, Equity Capital Market Global Sales and Origination, SGX; Ms Lock Yin Mei, Partner, Allen & Overy and Mr Indran Thana, Managing Director, Global Banking Head of SEA Consumer, Healthcare and Real Estate, UBS. Moderating the discussion was Professor Melvyn Teo, Deputy Dean (Faculty and Research), SMU Lee Kong Chian School of Business.

Professor Teo kicked off the discussion with a brief introduction of SPACs, recognising that it is an interesting and innovative product.  SPACs started gaining traction in 2020, where it raised US$83 billion in the year alone. Panellists shared several advantages of SPACs, which included a certain level due to the ability to access the outcome privately, which was only privy to venture capitalists and private equity investors traditionally. SPACs also allow the matching of the right type of capital with companies at the early stage of their growth cycle. Investors are given warrants, which allows them to exercise the right to enjoy the upside if the SPAC acquires a very promising company. The perks of SPACs include the positive branding effects of a big-name sponsor, less distraction due to ready capital for deployment, and advantages for companies whose valuations are harder to pin down (for example, newer companies that may not have a steady stream of income yet).

A strong pull factor for SPACs is the potential for investors to be part of unicorns, with significant downside protection. However, with benefits come risks.  SPACS have been quite controversial in the US due to issues like dilution and incentive alignment. In Singapore, there are many safeguards to ensure that less-than-ideal candidates are not incorporated as de-SPAC targets. Nonetheless, sponsors may start to get anxious when deadlines draw near and acquire any target that they are able to.

The panel advised retail investors to do their due diligence by examining the background of sponsors, their track record, and support provided. Given the rigour of governance in Singapore, overpromising of valuations is less likely. That said, regulations are there to protect consumers, but cannot safeguard against business failures.  Strong brand names, a strong network, credibility, and a good governance structure and relevant experience are things to look out for.

The conversation moved on to the suitability of SPACs for real estate companies. Panellists agreed that companies with high growth potential are more suitable in SPAC scenarios, for example those in energy, technology, healthcare tech, and consumer tech. Real estate may not be a natural industry for SPACs, which is evident from the sector representing the smallest component in SPACs currently.

However, there will be opportunities for disruption and potential for high growth in the property technology space.

The forum is part of the Mapletree Real Estate Programme at SMU which was first launched in 2018. Last year, Mapletree donated an additional $2.5 million to enhance the Programme. With the new funding, the expanded Programme aims to equip a wider group of students with the necessary knowledge and cross-disciplinary skills to build a bigger pool of talent for leadership roles in the real estate sector in Singapore and globally.

Ms Wendy Koh, Chairman of the SMU Advisory Board for Mapletree Real Estate Programme and Group Chief Financial Officer of Mapletree Investments, said: “I am happy to see that the Mapletree Real Estate Forum at SMU has gained traction since its roll-out in the year 2019 as a platform to share trends and cross-disciplinary knowledge to navigate the growing real estate sector in Singapore and globally. SPAC is a hot topic, and we believe that the Forum has helped SMU students, industry professionals and real estate practitioners gain more in-depth knowledge and perspectives about the topic and its prospects in the real estate industry.”