Warburg Pincus-Backed ESR-REIT Proposes Merger With Viva Industrial Trust

Warburg Pincus-backed e-Shang Redwood REIT (ESR-REIT) has proposed a merger with Viva Industrial Trust to create the fourth-largest Singapore-listed industrial REIT.

ESR-REIT announced the proposed merger with Viva Industrial Trust, a mainboard-listed business park and industrial REIT, this week after news of a potential deal was leaked by Bloomberg. The merger would be executed through ESR-REIT’s acquisition of all the stapled securities of Viva Industrial Trust. In return, ESR-REIT would issue its new units to the stapled security holders.

The proposed deal follows ESR-REIT’s walking away from talks to acquire Viva competitor Sabana REIT in November, after at least three months of negotiation between the two listed industrial trusts.

Merger To Create $2.3B Industrial Trust

The proposed merger is designed to “create a sizeable and liquid industrial REIT with an Asian footprint well supported by a developer sponsor financially and across the real estate value chain,” said Adrian Chui, chief executive officer at ESR-REIT in the statement. Chui added that the enlarged ESR-REIT is expected to become the fourth largest industrial S-REIT, with its overall asset size increasing to approximately S$3 billion ($2.3 billion).

Shanghai-based property tycoon Tong Jinquan is the biggest investor in both REITs to be merged, according to Bloomberg. Tong, a veteran investor in Singapore’s REIT sector, was reported in 2014 to own 64.75 percent of Viva Industrial Trust, 12.93 percent of Cambridge Industrial Trust (now ESR-REIT), 4.58 percent of Suntec Real Estate Investment Trust, and 16.20 percent of OUE Commercial Real Estate Investment Trust.

ESR To Boost Southeast Asia Presence

ESR-REIT currently manages S$1.68 billion ($1.3 billion) worth of properties with 9.9 million square feet (919,740 square metres) of gross floor area. The listed trust changed its name from Cambridge Industrial Trust in June of last year, after pan-Asian warehouse builder e-Shang Redwood (ESR) bought an 80 percent indirect stake in the trust’s manager.

ESR acquired the stake from National Australia Bank and investment firm Oxley Group in January 2017, after purchasing 10.65 percent interest in the trust the previous year. The investment in the Singaporean trust enabled ESR to expand into Southeast Asia, after building up a logistics portfolio across China, Japan and South Korea.

ESR was formed in January 2016 through the merger of Shanghai-based e-Shang with Singapore’s Redwood Group, two of the region’s fastest-growing warehouse developers. The company backed by global investors including Warburg Pincus, APG, PGGM, CPPIB, Ping An and Morgan Stanley now manages 7.3 million square metres of projects across Asia.

Viva Industrial Trust owns an aggregate area of 3.9 million square feet (362,321 square metres) GFA with a valuation of about S$1.3 billion ($1 billion).

Singapore’s REIT Sector Consolidates

The proposed deal highlights a consolidation trend in Singapore’s REIT sector, which Philip Levinson, then chief executive officer at Cambridge Industrial Trust, flagged in 2016. At the time, the former Blackstone executive noted that rising costs and lower revenues caused by tightened property policies made mergers the most viable option for real estate investment trusts to thrive.

Levinson’s remarks echoed Morgan Stanley’s conclusion a year earlier that consolidation in the market was “unavoidable and necessary” for trusts to develop sufficient scale and to ensure adequate stock liquidity for individual REITs to effectively compete on a global scale.