It has been a tough two years for PropertyGuru Group, during which time its Australian initial public offering was pulled just two days before the bell, and the COVID-19 pandemic brought its core business to a halt by keeping people indoors.
But 2021 is shaping up to be the turning point for the Singapore-based real estate listings site, following strategic acquisitions and an impending listing on the New York Stock Exchange.
“PropertyGuru is not a beneficiary of the pandemic,” Hari Krishnan, the group’s CEO, stated in an interview with DealStreetAsia.
But the opportunity to invest and grow the business was there, as Krishnan told the company’s board last year.
The company has operations across Singapore, Malaysia, Vietnam, Thailand, and Indonesia. “We said we have a feeling that our competitors in the space are going to struggle. What if we went really aggressively, really investing and taking a five-year, six-year view?” Krishnan recounted.
“We need to make a couple of bold moves.”
In September last year, the company raised S$300 million from private equity majors TPG and KKR.
In May this year, PropertyGuru announced the acquisition of the Malaysian and Thai entities of REA Group, which include iProperty Malaysia, and thinkofliving in Thailand. The transaction in Malaysia, in particular, brought a key rival into the fold and put PropertyGuru in the lead in the country.
At the same time, Krishnan sees significant opportunity in how the real estate sector continues to be woefully lacking in data and analytics for buyers, given the volume of transactions it hosts across key markets in Southeast Asia. “We see a huge void which we are uniquely able to fill.”
Early this year, the company was approached by SPACs, or US-listed blank cheque companies from the recent boom, looking for targets to merge with.
In July, PropertyGuru confirmed a SPAC merger with Bridgetown 2 Holdings, backed by Peter Thiel and Richard Li, that will see it list on the New York Stock Exchange by early next year, at a $1.78 billion valuation.
“For me, the biggest validation to this process is, as you’ll see with our disclosures to the SEC, we call out COVID as one of our top risk factors, we call out the fact that we are not a beneficiary,” Krishnan said.
“Unlike a lot of companies that are going public right now, we’re not doing it opportunistically. If anything we’re doing it on our weakest footing, and if we can raise money from the savviest investors, it’s only upside from here.”
For its 2020 financial year, PropertyGuru recorded an 8% dip in revenues from the year before to $59.3 million, though losses after tax from operations narrowed to $8.5 million, according to regulatory filings assessed by DealStreetAsia DATA VANTAGE.
The bulk of its revenues, or about 60% to 70%, come from real estate agents paying to list property for sale. The remaining portion of revenue comes mainly from property developers, who pay for advertising and other related services.
Edited excerpts of the interview with Krishnan:
How has PropertyGuru managed through COVID-19?
COVID, I have to say, is categorically a negative thing for the real estate sector. If construction sites are shut, if agents can’t take people to the sites, [even] digitisation doesn’t help. [Real estate is] an online-meets-offline industry, we’re not a pure digital industry.
We went to the Board and said [after the pandemic] there’ll be three kinds of companies: the ones that survive, the ones that unfortunately don’t make it, and the ones that are real winners.
If we wanted to be in that category we need to make a couple of bold moves. The opportunity in real estate data and software was large, so there are opportunities to do some M&A. We have a healthy balance sheet and we were adjusted EBITDA-positive as of FY18.
So we said we have a feeling that our competitors in the space are going to struggle. What if we went really aggressively, really investing and taking a five-year, six-year view? The fundamentals of the Southeast Asian real estate sector are very strong – urbanisation, the emerging middle class, digitalisation. We sit at a conference of those megatrends, so we should position ourselves to monetise and take advantage of the post-COVID era.
So we started investing organically, we started really diversifying our offering. But we also got acquisitive.
We raised money from TPG and KKR. It was a mixture of primary and secondary [transactions]. It gave us the opportunity to give returns to some investors, and raise money from investors who have the same investment horizon as us.
The primary [fundraising] was really about two things. One was an investment in proptech – primarily in Vietnam and Malaysia. And the second thing was to look at smart acquisitions we can make. So coming into 2021, the goals were definitely to [expand in] Malaysia significantly, really become a market leader, and to keep investing in proptech in Singapore, Vietnam, and then depending on how Thailand and Indonesia recover from COVID this year.
PropertyGuru is set to list in the US via a SPAC merger with Bridgetown 2 Holdings. How did that come about?
We had started conversations with REA Group. We said, there are two ways we can play this: we can keep fighting this Malaysia battle and the beneficiaries would be any paid marketing channels that we are using. Or we could combine forces and do something together. If we stop competing, both sides’ costs will go away. The revenue synergies are there.
The play was Malaysia, and to some degree Thailand – there was an interesting asset in Thailand, a video content play entirely focused on developers.
Then the SPACs started talking to us. By the end of January, we started getting a lot of inbound interest from SPACs.
Bridgetown was introduced to us by an investor we met in 2019. They were among the first SPACs we spoke to.
With Bridgetown, what happened is that we found a partner who both understood technology really well, and [who] gives us access to the capital markets in the US and in Hong Kong and access to family offices.
What is unique was they want only Southeast Asia; our part of the world very rarely gets that kind of attention. They were looking for companies that were capable of being listed and taken to the public markets in the US. I think it truly allows us to be global.
[With REA] we went back to the SPAC and said we just got even better because now we’re the clear market leader in Malaysia, with even more profitability and growth.
For me, the biggest validation to this process is, as you’ll see with our disclosures to the SEC, we call out COVID as one of our top risk factors, we call out the fact that we are not a beneficiary. So unlike a lot of companies that are going public right now, we’re not doing it opportunistically. If anything we’re doing it on our weakest footing, and if we can raise money from the savviest investors, it’s only upside from here.
So then would you consider PropertyGuru to be a SaaS business, with recurring revenue and some of the highest valuations among businesses?
This company is much more focused on actually disrupting the sector.
What we are focused on and what we don’t have are things like what we do with myproperty data. There’s a lot more we can do with data and software. When you look at FinTech we barely got started. We launched it and in a year we’ve done a loan book of a little over a billion Singapore dollars, which is fantastic, particularly given COVID, so it clearly works really well.
But that’s barely scratching the surface, we want to do a lot more. The acquisitions will be much more focused on data and software, and FinTech; we will not be focused on [acquisitions in] the property marketplace.
If you look at the subscription business, it is a recurring revenue business. So most people don’t realise that agents buy annual subscriptions from us.
We are definitely a marketplaces business, which has plays in software and FinTech. Our markets need this. There is no CoreLogic [third party property data and analytics service] that exists in the US and Australia. Even in Singapore, people are doing offline research – it’s bizarre. It’s a multibillion-dollar industry.
We see a huge void that we are uniquely able to fill because already when it comes to demand data, we are the single source of truth in markets like Singapore, and we are coming out in Malaysia with those two assets. Now if we then go and acquire software [assets] that we sell to developers, we will also get a better insight into how real estate is being used. And we can bind it all together and make that into a B2B data feed. So I think it is definitely not a play on valuation. This is a corporate strategy.
[A marketplace] is the most efficient way to connect supply and demand, to create economic activity within the property sector. But in our markets, unlike in the West, the lack of reliable third party data, the lack of digital or technology adoption within the enterprise stakeholders means they don’t participate in the marketplace the right way.
[For example] in Malaysia, as of 2018, there was a 60% rejection rate of home loans. That’s extraordinarily high, and because consumers did not know their credit worthiness. So we launched a credit check product or pre-approval; that was the first time it had been done digitally in Malaysia.
[With] FastKey: If I can make developers use software to actually understand their sales channels, we will know which channels work better. Even the developers, when you talk to them, they’ll say I have no idea whether the agent is selling my project or the competitor’s project. So we’re going deeper into the enterprise. But the goal is by going broad, we will be able to go further into the sector and monetise the marketplace.
How significant do you expect the fintech and data business verticals to be in time to come?
Singapore marketplaces in 2020 accounted for 56% of group revenue. Per our projections, as of 2025, they’ll account for 32% of revenue. [Other revenue streams of software and fintech are not included]. Singapore marketplaces accounted for closer to 80% or 90% of our revenue when I first came in.
So we’re diversifying the business significantly. Now the question is, can we diversify beyond marketplaces to go into software, property financing, fintech? [Real estate is] the largest asset class in the world, [but there’s minimal analytics and data for consumers]. We want to be the people who populate that.
FinTech and data account for less than 10% of our revenue today. I expect that about 12% to 13% of revenue in 2025 will come from FinTech and data, but that is without any M&A.
[With fundraising] we have a list of companies we’re looking at, in the software, data, fintech space, [but] we don’t have a specific target identified.
We’ve done two acquisitions in six months, so I think frankly right now, the focus is on integrating iProperty really well.