ESR Completes $5.2B Acquisition of ARA Asset Management

ESR has completed its $5.2 billion acquisition of Singapore-based ARA Asset Management, less than three months after the Hong Kong-listed logistics giant’s shareholders overwhelmingly approved the deal.

The enlarged ESR Group, which also encompasses ARA subsidiary Logos, now stands as the world’s third-largest listed real estate investment manager, behind Blackstone and Brookfield, with gross assets under management totalling $140 billion, Warburg Pincus-backed ESR said Thursday in a release.

In the cash-and-stock deal, $4.7 billion was paid through the issue of ESR shares at HK$27 each, representing 31.8 percent of total issued shares upon completion, while the cash portion of $519 million was partially funded by a $250 million share placement to Japan’s SMBC.

“We are excited to bring together the best-in-class platforms of ESR, ARA and Logos to form APAC’s largest real asset manager powered by the new economy,” said ESR Group chairman Jeffrey Perlman.

Asia Real Estate Supergroup

Along with Perlman, ESR co-founders and co-CEOs Jeffrey Shen and Stuart Gibson will continue in their roles. Joining the board as non-executive directors are ARA co-founder John Lim, SMBC managing executive officer Rajeev Kannan and CK Asset Holdings executive director Justin Chiu, whose group was among ARA’s original backers.

The senior management of ARA and Sydney-based warehouse specialist Logos, including ARA chief executive Moses Song and Logos co-CEOs John Marsh and Trent Iliffe, will continue in their respective roles.

Bringing in ARA expands the group’s network by adding 59 new capital partners, ESR said, giving the supersized company active relationships with nine of the world’s top 20 capital partners.

“Global investors are increasingly consolidating their relationships towards a smaller number of large-scale managers with diversified capabilities and strong track records,” Shen and Gibson said. “Against this backdrop, ESR is in a prime position to capitalise on this outsized growth, leveraging the expanded scale and offerings of the enlarged platform as APAC’s leading real asset manager to deliver unique ‘one-of-a-kind’ integrated solutions.”

Top-10 Global Player

With ARA’s APAC real estate AUM ranked tops in the region in 2020 at $66.9 billion, following the merger the new ESR Group sits seventh among all property fund managers globally, just behind America’s Nuveen and ahead of AXA Investment Managers Real Assets of France.

In what it called a value-enhancing step for the enlarged group, ESR last October proposed the merger of ESR-REIT and ARA Logos Logistics Trust to form Singapore-listed ESR-Logos REIT with total assets of $4 billion. By market cap, ESR-Logos REIT’s S$2.5 billion free float would rank eighth on the Singapore Exchange, just behind OUE Commercial Trust and ahead of CapitaLand China Trust, with the proposed merger set to go before unit-holders for approval on 27 January.

ESR in August reported that its first-half revenue grew nearly 25 percent year-on-year as assets under management shot up 36.9 percent to an all-time high of $36.3 billion. The group’s EBITDA jumped 38.6 percent to $373.5 million, with fund management EBITDA surging 50.9 percent to $97.1 million.

Morgan Stanley acted as lead financial advisor to ESR on the ARA acquisition, and Freshfields Bruckhaus Deringer served as legal counsel. United Overseas Bank provided financing advisory services to ESR, and Deutsche Bank acted as a financial advisor to Warburg Pincus.

Citigroup acted as lead financial advisor to ARA alongside DBS and OCBC Bank, while Latham & Watkins served as legal counsel to ARA and its shareholders.

Note: this article updates an earlier version to clarify that the transaction adds 59 new capital partners to ESR’s network. An earlier version indicated 596 new capital partners. Mingtiandi regrets the error.