Starwood, Sixth Street, SSW Consortium in Talks to Buy Out ESR

A consortium of investors including Starwood Capital has made a preliminary proposal to buy out HKEX-listed developer and fund manager ESR, according to a statement by the company today.

The private equity firm led by financier Barry Sternlicht has teamed up with fellow fund managers Sixth Street Partners and SSW Partners to make a non-binding and conditional offer for shares in ESR, which the company’s largest shareholders are welcoming and which would could lead to ESR’s privatisation, per the stock exchange filing. The three private equity shops are said to be participating equally in the offer.

ESR said that the proposal was made on 25 April, just over one month after Starwood acquired a nearly 11 percent stake in the company from two of its co-founders, Stuart Gibson and Charles de Portes, and noted that the deal, “…if proceeded with, could result in a delisting of the Company from the Stock Exchange.”

The industrial specialist ranked as the largest manager of private real estate funds in Asia Pacific last year with $70.8 billion in unlisted vehicles, according to an ANREV survey. The company grew its assets under management, which also include publicly listed REITs, to $156 billion by the end of last year, but has seen its stock lose two-thirds of its value in the last three years, as investors shun Hong Kong-listed real estate equities.

Cash or Carry

No pricing has been finalised for the proposed deal, according to the statement, with ESR stock having closed at HK$8.35 on 24 April, the day before the offer was made. The average premium paid in successful privatisations on the Hong Kong exchange was approximately 30 percent in recent years, according to industry analysts. Shares in ESR closed on Monday at HK$10,00 each.

The deal under discussion gives existing shareholders “the ability to choose to receive cash consideration or roll their shares into the go-forward private company, subject to the terms of the final rollover arrangements,” ESR said in the statement.

The company cautioned that there is no indication that the proposal will lead to a transaction, but said that the offer has met a warm reception, noting that, “the Company understands that Warburg Pincus, Mr. Stuart Gibson (“Mr. Gibson”), Mr. Charles de Portes (“Mr. Portes”) and Mr. Jinchu Shen (“Mr. Shen” and, together with Mr. Gibson and Mr. Portes, the “Founders”) are in discussions with the Consortium and that they are welcoming of the Indicative Proposal and believe that it is in the best interests of the Shareholders.”

Starwood and its consortium members current hold approximately 15.7 percent of ESR’s issued shares, while Warburg Pincus has 14.04 percent and the company’s founders collectively have a 7.43 percent interest, according to the filing. The founders also hold stock options for additional shares equivalent to approximately 0.05 percent of issued equity.

ESR said it has formed an independent board committee to consider the proposal and has retained Citigroup Global Markets Asia Limited as financial adviser in the proposed transaction.

Hong Kong Market Slide

Billing itself as “APAC’s largest asset manager powered by the new economy,” ESR builds and manages properties across nine Asian countries, plus Europe, however, its shares have been caught up in a stock slide contagion on the Hong Kong exchange.

The Hang Seng Index has slid 34 percent in the last three years, while the index of property companies listed on the HKEX has lost more than half of its value. During 2023, ESR earned $268.1 million in profit, distributed $139.6 million in dividends to investors, and spent $217.8 million buying back shares, according to its latest financials.

The company’s stock slumped 43 percent from 1 January 2023 through the end of the year.

ESR debuted on the Hong Kong stock exchange at HK$16.80 in one of the largest IPOs of 2019. In January 2022 it completed the acquisition of Singapore’s ARA Asset Management, in a $5.2 billion deal which made it the third-largest listed real estate investment manager, behind Blackstone and Brookfield, with gross assets under management totalling $140 billion,