ESR Said Mulling 2020 REIT Listing of South Korea Warehouses

Less than two months after completing a HK$14 billion ($1.8 billion) IPO in Hong Kong, ESR Cayman is said to be exploring the potential for listing a real estate investment trust based on the firm’s warehouse assets in South Korea.

The Warburg Pincus-backed logistics specialist has reportedly approached banks to pitch for a REIT listing, potentially during 2020, that could raise over $500 million, according to a report by Bloomberg.

A person close to ESR told Mingtiandi that at this point the company is only in the deliberation phase regarding the potential REIT. ESR representatives declined to comment in response to enquiries from Mingtiandi.

Packaging Up ESR’s South Korean Assets

The finer details of the potential real estate investment trust, including the assets to be included, and the target bourse, have not been finalised, according to the Bloomberg account, but may include ESR’s existing assets in South Korea.

The 25 South Korean assets owned and managed by ESR are all in the Seoul area, and were valued at $3.6 billion at the end of June this year.

The Korean portfolio, which represents 18 percent of the company’s $20.2 billion total in assets under management, make ESR the largest owner of logistics property in the greater Seoul region by gross floor area with 980,500 square metres (10.6 million square feet) of GFA and another 629,500 square metres of projects under construction.

In addition, the company’s land bank around the South Korean capital, which could yield 543,900 square metres of finished distribution facilities, give it Seoul’s largest logistics development pipeline, according to the company.

Building Up a Range of REITs

Should ESR’s reported REIT move go ahead, it would add to the company’s two existing Singapore-listed REITs that have a combined value of $2.9 billion, according to ESR.

Six months ago, the company completed its acquisition of the Manager of Sabana REIT, which has a portfolio of 18 industrial and logistics properties in Singapore worth around S$1 billion ($740 million).

ESR also owns 67 percent and is controlling shareholder of the manager of ESR-REIT, which has a portfolio of 57 industrial, business park and logistics properties located across Singapore valued at S$3.1 billion ($2.2 billion).

The company holds around 22 percent of the total issued units of Sabana REIT and  8.9 percent of the issued units of ESR-REIT, according to the latest publicly available information.

The proposed listed of ESR’s South Korean assets would fit with the company’s strategy, as stated in its IPO prospectus, of recycling capital by “disposing of its stabilised assets to its funds and potentially REITs” to free up cash that can be used for future projects.

In line with this strategy, just six months ago a pair of development funds managed by the company transferred a 50 percent stake in a Japan logistics property to a newly established private REIT in the country for JPY 4.4 billion ($40.5 million).

Following a Record-breaking Year for REITS

ESR’s reported deliberations come amid a record-breaking year for REITs in Asia, with over $14 billion raised so far in 2019, which exceeds the previous record, set in 2013, of $13.8 billion, according to JLL data published 11 days ago.

“This has been a particularly impressive year for REITs,” said JLL’s Head of Asia Pacific Capital Markets, Nicholas Wilson. “Most major REITs are now trading at a premium to their underlying valuation, which has improved their ability to raise follow-on equity.”

“The logistics sector remains the most in-demand asset class around the Asia Pacific region,” Wilson said. The brokerage executive noted that, boosted by the rise of e-commerce, logistics REITs had pulled in around a third of all capital raised by listed trusts in Asia.