Pan-Asian logistics group ESR continued its mission to build a heavyweight player in Singapore’s fragmented industrial REIT sector this week, with a set of deals that boosts its stake in SGX-listed Sabana REIT to where it owns more units in the trust than any other investor held as of 31 March of this year.
The arrangement also gives the Warburg Pincus-backed logistics fund manager and warehouse developer a more than 90 percent interest in the trust’s manager, according to a set of announcements released on Wednesday.
The transactions, which together represent an investment of S$62.2 million ($45.1 million) by ESR come a year and a half after the company ended a previous attempt to acquire Sabana REIT, which has a platform of 18 properties across Singapore.
Since that time the Hong Kong-based warehouse platform, which is preparing for an initial public offering which could come later this year, has gone on to merge its ESR-REIT with Singapore-listed Viva Industrial Trust, a move which already made the combined entity the fourth-largest industrial REIT on the Singapore exchange.
Assembling a Herd of Industrial REIT
In a statement, ESR said that, through a subsidiary, it has entered into agreements that brings its ownership of Sabana REIT to 21.4 percent of the trust’s issued units. According to Sabana REIT’s most recent annual report, the trust’s largest block of shares were nominees represented by Citibank who held a 17.1 percent stake, with the next largest owner holding 8.21 percent of the issued units.
Logistics firm Vibrant Group, which before this deal controlled the REIT’s manager, together with its Singapore Enterprises unit is selling 6.51 percent of the trusts units to ESR for around S$32.9 million, and under another agreement, Vibrant will sell an additional 1.48 percent stake in the trust.
ESR is also purchasing another 1.75 percent of the trust’s units from Eric Khua Kian Keong and an additional 0.17 percent from Khua Hock Su.
Following the set of transactions, ESR, which was already a stakeholder in Sabana REIT, following an aborted attempted at a takeover last year, will have boosted its holding the industrial trust to 21.4 percent, making it the trust’s largest unit holder.
Gaining Control of the Manager
Through a separate sale and purchase agreement with lVibrant Group, ESR is acquiring 51 percent of Sabana Investment Partners Pte Ltd (SIP), an investment holding company that owns a 100 percent interest in Sabana Real Estate Investment Management Pte Ltd, the manager of Sabana REIT; and Sabana Property Management Pte Ltd, the property manager of the listed trust; for a total consideration is S$20.5 million, with an adjustment sum of around S$1.3 million.
At the same time, ESR, through its e-Shang Infinity Cayman Limited unit, has also entered into separate agreements to purchase approximately 9.9 percent of the total issued units in Sabana REIT, according to the company statement.
e-Shang Infinity Cayman Limited is also the parent company for entities involved in the management of ESR-REIT, which was known as Cambridge Industrial Trust until June of 2017, with the name change pursuant to ESR’s purchase of an 80 percent indirect stake in the trust’s manager.
The transaction will result in ESR indirectly holding about 93.8 percent of the equity in the manager of Sabana REIT.
ESR Aggregates Singapore Industrial REITs
“The investment in Sabana REIT and its manager is in line with ESR’s long-term strategy of investing in a broad range of real estate investment vehicles that would provide us with access to a portfolio of industrial properties in various stages of the property life cycle,” Shen and Gibson jointly said in the statement.
Last year, Warburg Pincus’ head of Southeast Asia, Jeffrey Perlman was more direct about the group’s vision for the Singapore, stressing in an interview with the city’s Business Times, how ESR-REIT could be used as vehicle to consolidate the region’s fragmented industrial trust ecosystem.
With its control over the management of Sabana REIT, ESR can now steer a trust which has a portfolio valued at S$880 million ($638 million) as at March 31, 2019 across its 18 assets in the city.
Sabana REIT, which promotes itself as one of the few real estate investment trusts globally to be compliant with Islamic Shari’ah law, holds high-tech industrial facilities, logistics warehouses, chemical warehouses and general industrial properties.
The acquisition, according to ESR co-founders and co-CEOs Jeffrey Shen and Stuart Gibson, further establishes the logistics real estate platform’s presence in Singapore. ESR, they added, is poised to leverage its Singapore platform as a gateway for expansion into ASEAN, adding to a footprint that already includes mainland China, Korea, Australia, Japan, India and Australia.
Staying Active in Run-Up to the IPO
ESR, which announced this week that it had closed on JPY 70 billion ($633 million) in funding for its ESR Japan Logistics Fund III, is the largest Asia Pacific focused logistics real estate platform by gross floor area, by the value of the assets it owns directly and by the funds and investment vehicles it manages.
In March, the company filed for an initial public offering in Hong Kong, with the stock market listing expected bring in at least $1 billion.
The IPO, scheduled within the next two quarters, is expected to be the biggest real estate stock debut on the Hong Kong exchange since Dalian Wanda’s $3.7 billion listing in 2014, according to Mingtiandi estimates.
ESR had assets under management in excess of $14 billion as of September 30th, 2018, according to the company’s IPO filing.