ESR to acquire ARA Asset Management

ESR Cayman Limited (“ESR”; SEHK Stock Code: 1821) and  ARA Asset Management (“ARA”) today announced that the two companies have entered into an  acquisition agreement pursuant to which ESR will acquire 100% of the share capital of ARA for US$5.2 billion (the “Transaction”). ESR’s founders along with OMERS and JD.com (which in total represent all  the shareholders who have representatives on the ESR board) with an aggregate shareholding of 46%  have provided irrevocable undertakings to vote in favour of the Transaction. 

Founded in 2002 and listed on the SGX between 2007-2017, ARA is the largest real asset manager in  APAC with a captive and fast growing New Economy real estate platform via its subsidiary, LOGOS.  With US$95 billion in gross AUM3, ARA operates a diversified multi-product platform across assets,  strategies and geographies in both the public and private markets, covering real estate investment  trusts (REITs) and private funds in real estate, infrastructure / renewables and credit. ARA executes  its market leading platform under its “Raise, Invest, Manage and Build” strategy. Group-wide, it has  raised over US$16 billion in equity capital since 2016, which has supported a gross transaction volume  of acquisitions, divestments and development activity of almost US$20 billion during the same period.  Utilising an investor-operator model to manage its investments and to add value at every stage of an  asset’s life cycle, ARA has built a demonstrable track record over time in growing its business and  ultimately delivering value for all its stakeholders. 

As a key part of its growth engine, ARA currently owns a controlling stake in LOGOS, a leading logistics  and data centre real estate developer and fund manager with a strong presence across Australia, China,  Singapore, Indonesia, Malaysia, Vietnam, India, Korea and New Zealand. On the back of its continued  expansion across APAC, LOGOS’ total AUM has nearly doubled over the past two years to US$17 billion,  comprising over 8.9 million sqm of property either owned or under development across 26 ventures,  including the Singapore listed ARA LOGOS Logistics Trust (SGX: K2LU). Similar to ESR, LOGOS is a fully  integrated developer and fund manager and manages all aspects of logistics and data centre real  estate, including land sourcing, design and development, leasing, operations and asset management  

1 Reported AUM of US$29.9 billion for ESR as of 31 December 2020 adjusted for AUM announced in 1H2021 (Milestone  Portfolio US$2.8 billion, RJLF3 US$675 million, Korea Income JV US$500 million). Gross asset under management by ARA  and its associates, inclusive of ARA LOGOS Logistics Trust as of 30 June 2021; adjusted for LOGOS’ acquisition of  Moorebank Logistics Park announced on 5 July 2021. 

2 Logistics and data centres 

3 Gross asset under management by ARA and its associates, inclusive of ARA LOGOS Logistics Trust as of 30 June 2021;  adjusted for LOGOS’ acquisition of Moorebank Logistics Park announced on 5 July 2021.

1. On behalf of some of the world’s largest investors. On the fund management side, LOGOS has built a  very strong following with 22 institutional capital partners, 14 of which are new to the enlarged ESR Group. 

Following the completion of the Transaction, ARA’s business will be combined with ESR’s platform.  The enlarged ESR Group will become APAC’s largest real estate and real asset manager powered by  New Economy, and the world’s third largest listed real estate asset manager. The combined AUM will  reach US$129 billion, of which over US$50 billion is in New Economy real estate, making it the largest  such platform in APAC. Based on the financial results for 2020, over 80% of the enlarged ESR Group’s EBITDA4 will come from New Economy real estate, while more than 50% of its AUM will come from  perpetual and core capital vehicles (including 14 listed REITs). 

Jeffrey Perlman, Chairman of ESR, said: “Our vision has always been to build a leading fund manager  focused on technology enabled real estate, especially logistics and more recently data centres, on the  back of major secular trends including the rapid rise of e-commerce, digital transformation and the  financialisation of real estate in Asia Pacific. With the acquisition of ARA, we are very excited to bring  two best-in-class businesses together to form Asia Pacific’s #1 real asset fund manager powered by  the leading New Economy platform. We are currently witnessing a ‘once in a generation’ change in  real estate where leading global investors are seeking to rebalance their portfolios by divesting  institutional quality assets in order to redeploy that capital back into New Economy real estate where  they have been meaningfully underweight. By creating a one-of-a-kind closed loop solutions  ecosystem for capital partners with the addition of ARA, we can leverage our perpetual capital vehicles  to help them divest these assets and captively redeploy back into New Economy real estate via ESR  and LOGOS, the largest New Economy real estate platform in Asia Pacific with over US$50 billion of  AUM. As we usher in this new era of real estate, the enlarged ESR Group is even better positioned to  capture this outsized market opportunity.” 

Today, global investors are increasingly consolidating relationships towards a limited number of large scale and professional managers, allocating more capital to a smaller roster of managers. The  increasing average fund size – 80% of funds closed in 2020 are over US$1 billion in size – underscores  the trend of larger managers gaining greater share of fund commitments. The enlarged ESR Group, as  one of the largest listed real estate investment managers globally, is poised to capitalise on this trend. 

Jeffrey Shen and Stuart Gibson, ESR Co-founders and Co-CEOs, said: “First, we want to welcome the  ARA and LOGOS teams as well as our new strategic shareholders to the ESR family. This is an exciting  time for ESR as we look forward to the promising future the combined platform is set to bring about.  Post transaction, the enlarged ESR Group will witness immediate growth in size, scale and offerings – as global investors seek to give more capital to increasingly fewer managers, we are uniquely  positioned to capture an outsized share of that capital. Additionally, we have always believed in the  growth of logistics and data centre real estate and this transaction accelerates our vision considerably  as our geographic reach will now extend across over 95% of GDP in Asia Pacific, total New Economy  AUM will rise by 49% to over US$50 billion, portfolio GFA will increase by 44.3% to 29 million sqm and  we will have ‘dry powder’ of US$7 billion to deploy into new logistics and data centre projects. 

“Furthermore, we have always been impressed by ARA’s and LOGOS’ commitment to ESG and we are  very excited about the broader impact the enlarged Group can have across our business and our local  communities. We firmly believe that the enlarged Group will build immensely on our long-standing  reputation as a robust, resilient and purpose-led organisation dedicated to creating sustainable value  for our shareholders, capital partners, customers and most importantly our valued employees.” 

4 Based on 2020A segment EBITDA, before unallocated corporate costs.

2 : John Lim, ARA Co-founder and Deputy Chairman, said: “For close to two decades, ARA has established itself as a leading real asset manager with a successful track record across geographies, asset classes  and strategies through multiple market cycles. We look forward to partnering with the ESR team,  whose expertise, dedication and vision have led to building the region’s leading logistics real estate  platform, and we can now together provide investors with a full suite of products with an outsized  contribution from New Economy real estate.” 

Mr. Lim, together with a representative from each of CK Asset Holdings and Sumitomo Mitsui Banking  Corporation (“SMBC”), will be appointed to ESR’s board of directors. SMBC will also subscribe to a  US$250 million placement of new ESR shares to reinforce its commitment to the enlarged ESR Group.  The senior management of ARA and LOGOS will join the enlarged ESR Group to drive its next phase of  growth. 

Also integral to ARA’s growth strategy is a strong focus on sustainability where it adopts a holistic  approach in incorporating ESG considerations into its business operations. ARA’s initiatives on the  sustainability front include joining as a signatory for the Net Zero Carbon Buildings Commitment under  the World Green Building Council and adopting the United Nation Principles for Responsible  Investment (UNPRI). In addition, ARA Group has secured green loans exceeding S$1 billion to date and  intends to expand its green financing initiatives. ARA is also an active participant in GRESB, and many  of its publicly listed REITs and private real estate funds have obtained 5-Star Ratings. ARA’s sustainability efforts have been recognised by industry peers with numerous awards and accolades,  including Best Sustainable REIT Fund Manager in Asia Pacific, ESG Real Estate Investor of the Year in  Asia, among others. 

John Marsh and Trent Iliffe, the Co-founders and Managing Directors & Co-CEOs of LOGOS, also commented: “We are excited to partner with ESR in our next phase of growth. Our focus has always  been to create a leading logistics and data centre specialist that can deliver strong and sustainable  returns for all our stakeholders. The power of the combined platform will be unmatched and we look  forward to leveraging our complementary capabilities, expertise, commitment to ESG, capital and  customer relationships to deliver a best-in-class offering going forward.” 

The Transaction brings together two of the region’s fastest growing platforms, ESR and LOGOS, to  form a leading New Economy real estate platform, doubling down on this rapidly expanding segment  with two leading growth engines. The enlarged Group’s New Economy AUM and development pipeline  will be the largest in APAC with top 1 or 2 positions in every market across the region. 

Pursuant to the acquisition agreement, ESR will acquire 100% share capital of ARA via a 90/10  stock/cash transaction, which comprises: 

• Stock (90%)5,6: US$4.7 billion in new ESR shares (“Consideration Shares”) and Vendor Loan Notes7(“VLN”); and
• Cash (10%): US$519 million in cash funded by US$250 million share placement8to SMBC and US$269 million debt / internal resources

5 ESR has option to fund up to an additional US$1,038 million with cash. 

6 Consideration Shares and VLN to be issued at price of HK$27.00 per share representing a premium / (discount) of (2.5%), 1.9% and 5.7% to last close, average closing price since 5 July 2021 and average closing price since 5 February 2021,  respectively. 

7 VLN are non-voting, perpetual, zero-coupon, convertible to new ESR shares upon satisfaction of certain conditions,  including the condition that no mandatory general offer is triggered for ESR. 

8 Strategic partner, SMBC, to subscribe to a US$250 million placement at an issue price of HK$25.35 per share to reinforce  commitment to the Enlarged ESR Group.

3 : All ARA shareholders will rollover their ownership interest into ESR and have agreed to lock-up of six  months. Furthermore, it is contemplated at the close of the transaction ESR’s founders and ARA’s co founder, John Lim, would have committed to a lock-up of up to 36 months on a staggered basis. 

The Transaction is subject to ESR shareholders’ approval at an EGM to be convened in due course. The  Transaction is subject to customary closing conditions including, amongst others, regulatory approvals. Closing is expected by the end of 2021 or first quarter 2022. 

Morgan Stanley Asia Limited is acting as financial advisor, and Freshfields Bruckhaus Deringer is  serving as legal counsel to ESR. In addition, United Overseas Bank Limited is providing certain debt  and financing related advice to ESR on the Transaction. 

Citigroup Global Markets Singapore Pte. Ltd. is acting as lead financial advisor to ARA, and DBS and  OCBC Bank have also been appointed as financial advisors, and Latham & Watkins is serving as legal  counsel to ARA.