Early this week, an activist fund, Quarz Capital, called on ESR Cayman to merge ESR REIT with Sabana REIT. This news puts a spotlight on a phenomenon I noticed in the Industrial S-REIT space – ESR’s ambitions in consolidating Singapore industrial REITs.
In today’s article, I lay out the various observations I have on this and my own take on this phenomenon.
ESR’s Founding and IPO
ESR Cayman claims to be APAC’s leading integrated logistics real estate provider with over US$20b AUM and over 15 million sqm of GFA.
ESR Cayman was formed in 2016 as a result of a merger between the e-Shang and Redwood Groups.
e-Shang was a largely China-focused logistics developer founded in 2011 by Jeffrey Shen with the backing of private equity firm Warburg Pincus. Redwood was founded in 2006 by Charles de Portes and Stuart Gibson with the intention of investing in logistics in the Asia-Pacific region.
ESR Cayman’s history as a public company has been a brief short one, just IPO-ing early this month on the HKex to some fanfare. It is ironically currently trading below its IPO price of HKD17.40.
As a side note to myself, I think ESR’s Prospectus warrants a deep dive in the future for my own understanding of ESR’s strength as a Sponsor.
ESR’s voracious growth in Singapore
ESR’s foray into the Singapore Industrial REIT space began in 2017 when it acquired controlling interest in Cambridge Industrial Trust’s REIT Manager and renamed it as ESR-REIT.
Ever since, it seems like ESR has been on war path in Singapore. Here’s a summary of the known mergers and acquisitions since ESR took over:
- 17 Oct 2017 – $95m acquisition of 8 Tuas Lane
- 14 Dec 2017 – $240m acquisition of 80% stake in 7000 Ang Mo Kio Ave 5
- 24 Apr 2017 – $98m acquisition of 15 Greenwich Drive
- 15 Oct 2018 – Merger with Viva Industrial Trust becomes effective, increasing the REIT’s AUM to $3.0b
- 7 Aug 2019 – Closing of acquisition of 48 Pandan Road
- 22 May 2019 – ESR Cayman gains control of Sabana REIT via buyout of distressed Sponsor Vibrant Group
- 6 Nov 2019 – ESR Cayman raises stake in AIMS APAC REIT from 5% to 9%
- 15 Nov 2019 – ESR Cayman further increases stake in AIMS APAC REIT to 10%
Implications for SG Industrial S-REITs
Developer-backed Industrial S-REITs
I honestly see no threat of consolidation for the Mapletree and Ascendas REITs in the market as ESR has largely avoided the bigger Industrial S-REITs, focusing on the smaller S-REITs.
The only implication I think of is the increased strength of a competitor in the Singapore market may provide a viable alternative for Mapletree and Ascendas REIT tenants. However, given that Mapletree and Ascendas REITs have largely started to look overseas for growth, I doubt this is a very big issue for them.
Non-developer backed Industrial S-REITs
This is where the discussion gets very interesting. There are 4 remaining small cap Industrial S-REITs / Trusts in Singapore that I know of:
- Sabana REIT
- AIMS APAC REIT
- Cache Logistics Trust
- Soilbuild Business Space.
Sabana REIT and AIMS APAC REIT
ESR Cayman has indicated interest in AIMS APAC REIT and Sabana REIT given their moves.
Sabana REIT is the closer of the 2 of being merged, with ESR already controlling the REIT Manager and owning the units held by former sponsor Vibrant Group. This is probably why Quarz Capital highlighted the potential for Sabana REIT to be merged in the first place. Given that Sabana REIT is currently trading below book value, it may be worth a punt on takeover speculation. However, make no mistake, the underlying properties are underperforming with low occupancy and declining DPU. As such, if you do take a position in Sabana REIT, it is more for takeover speculation.
AIMS APAC REIT may take a longer time to consolidate as it is still sponsored by AIMS Capital. George Wang also still owns 8% of the REIT. However, given the loose ownership structure, ESR should be able to slowly accumulate units from the open market before making a takeover bid to other substantial shareholders. The good thing about this REIT is that the underlying properties are performing decently and will pay you to wait.
Cache Logistics Trust
ESR doesn’t actually have a position in Cache Logistics Trust. The interesting thing is that ARA Asset Management, the Sponsor, is partly backed by Warburg Pincus as well. Will be interesting to observe how if anything develops out of this link.
Soilbuild Business Space
Honestly, I don’t foresee any movement in this Trust as it is largely family owned.
My belief in AIMS APAC REIT was shaken during the last placement exercise. However, given ESR Cayman’s interest in the REIT, I’ve decided to hang on and double down if it gets cheaper. As for Sabana REIT, it might be worth a punt.
Disclaimer: The information presented are for your information only and does not constitute a call to buy or sell shares. Please do your own due diligence before acting on this information. I’ve an existing position in AIMS APAC REIT.