Singapore’s ESR-REIT, Viva Industrial Trust Propose $2.2B Merger

The managers of ESR-REIT and Viva Industrial Trust (VIT) have announced a proposed merger that would create Singapore’s fourth-largest industrial real estate investment trust by asset value, totalling about S$3 billion ($2.2 billion).

Through the proposed deal, which would mark the city-state’s first merger of two industrial REITs, VIT would become a wholly owned sub-trust of ESR-REIT, and the enlarged trust would continue to be managed by the ESR-REIT Manager. Listed on the Singapore Exchange since 2006, ESR-REIT is currently the country’s sixth-largest industrial REIT, with 47 properties totalling about S$1.7 billion in value.

VIT was listed in 2013 and currently owns nine properties with roughly S$1.3 billion of total assets. The merger would create an enlarged portfolio totalling 56 properties and measuring 13.6 million square feet of gross floor area, the companies announced last week.

Industrial REITs Aim to Scale up

The scheme still requires approval by the VIT stapled security holders, the ESR-REIT unitholders and the Singapore Court. ESR-REIT announced this past January that it was in exclusive talks with VIT regarding the prospective merger. The latest announcement reveals that the parties have entered into an implementation agreement setting out the terms and conditions of the deal.

“Size does matter for REITs,” commented Adrian Chui, CEO and executive director of the ESR-REIT Manager in a press release. “This merger will be a milestone transaction that will create a portfolio that is stronger, more resilient and better-diversified. Leveraging our respective capabilities in operational and capital management, we will be in a strong position to deliver value to unitholders.”

The new entity will be backed by pan-Asian logistics builder ESR group, which bought an 80 percent stake in the manager of ESR-REIT, then called Cambridge Industrial Trust, in January 2017. One of the region’s largest logistics players with over $11 billion of external assets under management, the Warburg Pincus-backed firm will serve as the developer-sponsor of the enlarged trust. Japanese conglomerate Mitsui & Co owns the other 20 percent of ESR-REIT’s manager.

The combined portfolio will have an overall occupancy rate of 90.9 percent, with a roster of 350 tenants. The properties are spread across Singapore, ranging from general and high-specification industrial facilities, to light industrial assets, logistics and warehouse properties, and business parks. Key projects include the Tampines LogisPark and the UE BizHub EAST within the Changi Business Park.

Business parks and high-spec properties make up some 46 percent of the enlarged portfolio, which is expected to benefit from a scarcity of supply in Singapore over the next three years, driving stable, high rents for the asset class.

Merger to Occur Through Trust Scheme

The merger would take the form of a trust scheme, through which ESR-REIT would acquire of VIT’s stapled securities, issuing new ESR-REIT units to the stapled security holders in turn. The consideration implies an equity value of about S$936.7 million for VIT, and would be paid for 10 percent in cash and 90 percent through the issuance of new ESR-REIT units.

The merger is expected to improve operational flexibility and economies of scale for the REIT, which will be better positioned for growth and overseas expansion, according to the firms. A presentation deck published by ESR-REIT flags the potential for buying up assets in ESR Group’s regional pipeline — including in China, South Korea and Japan — as well as asset enhancement efforts affecting nearly 500,000 square metres of space in the current portfolio, which could potentially generate higher yields.

ESR Has a Busy Week

ESR was formed in January 2016 through the merger of two of the region’s fastest-growing warehouse developers, Shanghai-based e-Shang and Singapore’s Redwood Group. Backed by global investors including Warburg Pincus, APG, PGGM, CPPIB, Ping An and Morgan Stanley, ESR now manages around 10 million square metres of projects across Asia.

The warehouse builder formerly known as e-Shang Redwood also announced last week a partnership with Beijing Properties to set up an offshore fund that would acquire logistics projects worth RMB 6.4 billion ($1 billion) from the mainland developer. The move came a day ESR received a $306 million investment from Chinese e-commerce giant JD.com that will expand its portfolio of distribution centres in mainland China.