ESR Prices Shares for $320M Korean Logistics REIT

After holding Hong Kong’s third-largest IPO of 2019, warehouse specialist ESR is headed for a $320 million debut on Korea’s KOSPI exchange this month, according to an announcement late last week by the developer and fund manager.

Following a road show which began on 23 November, shares in ESR Kendall Square REIT, a trust set up to acquire warehouse assets managed by Hong Kong-listed ESR Cayman’s Korean unit, have been priced at KRW 5,000 each. At that price, the initial public offering will be worth KRW 357 billion (around $320 million), ESR said on 4 December.

Subscriptions to the IPO by retail investors and domestic Korean institutions began on Friday, and will run through 8 December, with trading on the exchange expected to commence on or about 23 December.

REIT to Hold 11 Assets

ESR Kendall Square REIT will use the proceeds from the offering to purchase a set of 11 logistics properties in the Greater Seoul and Busan areas by direct acquisition and through buying out four real estate funds managed by ESR Kendall Square, according to the announcement.

Together the set of sheds cover 684,095 square metres (7.4 million square feet) with 10 assets expected to be acquired by 14 December, and the final property to be acquired by 1 June 2021.

ESR, which entered the Korean market in 2014, has the good fortune to be selling one of 2020’s most sought after asset classes in a top performing location.

Helped along by a developed domestic financial market and an efficient public health response to the COVID-19 pandemic, trades of real estate assets in South Korea grew by 22 percent in the third quarter compared to the same period in 2019, according to data from Real Capital Analytics.

With a surge in demand from e-commerce providers putting warehouse space across Asia Pacific this year, acquisitions of industrial property (primarily logistics space) were up by 15 percent from July through September, RCA’s figures show.

1 Million Square Metres on the Way

After ESR Kendall Square REIT has finished acquiring its initial portfolio, the trust may be in line to buy more assets from its sponsor and funds under its management. In addition to the properties set for sale to the REIT, ESR Kendall Square currently manages another five stabilised projects totalling 644,985 square metres.

Also eligible for future acquisitions are another four properties completed this year and an additional set of four scheduled to come online in 2020. Together, the warehouse builder and fund manager’s pipeline of 2020 and 2021 properties cover 976,054 square metres.

Citigroup Global Markets Korea Securities, Morgan Stanley & Co International and Korea Investment & Securities will be the joint global coordinators and underwriters for ESR Kendall Square’s offering, the company said. Other co-managers and underwriters taking part include NH Investment & Securities, KB Securities and Samsung Securities.

Following completion of the IPO, which had first been reported by Mingtiandi one year ago, ESR Kendall Square will indirectly own a 9.9 percent equity interest in ESR Kendall Square REIT.

Salving Singapore Disappointment

For Hong Kong-listed ESR Cayman, the upcoming Korean payday may be consolation for a setback that the pan-Asian warehouse player suffered in Singapore on Friday.

Shareholders in Sabana REIT, an SGX-listed industrial trust managed by an ESR unit, on 4 December voted down a proposal that would have seen it merge with ESR REIT.

Some 66.7 percent of shareholders in Sabana REIT had backed the merger with ESR REIT, but this level fell below the 75 percent threshold needed after a pair of activist fund managers had mounted a campaign to push for a higher valuation for Sabana’s equity.

ESR has been pursuing a strategy of buying up and consolidating listed trusts in Singapore’s fragmented industrial market since taking over Cambridge Industrial Trust in 2017 and later changing its name to ESR REIT. The company’s next target was Viva Industrial Trust which it took over in 2018 before merging that entity with ESR REIT last year.

ESR Cayman’s 2019 IPO raised HK$12.6 billion ($1.6 billion) to rank as the third-largest on the HKEX last year.