Warburg Pincus-backed pan-Asian logistics real estate developer, owner and operator ESR (e-Shang Redwood) has reached a deal to buy 80 per cent indirect stake in the manager of Cambridge Industrial Trust (CIT) from National Australia Bank and investment firm Oxley Group.
The deal also marks e-Shang Redwood’s entry into Southeast Asia.
Singapore-listed Cambridge Industrial Trust Management Limited, manager of Cambridge Industrial Trust, in a filing with the exchange on Wednesday (18 January) said that nabInvest Capital Partners Pty Limited and CREIM Limited will sell their aggregate 80 per cent indirect interest in CIT to e-Shang Infinity Cayman Limited, a subsidiary of e-Shang Redwood Limited (ESR).
The transaction also includes Infinity acquiring a 100% direct interest in Cambridge Industrial Property Management Pte. Ltd. (CIPM), the property manager of CIT. The completion of this is expected to take place within this week.
This strategic investment comes at an opportune time. On 4 January 2017, ESR closed a US$300m pre-IPO investment from a consortium of Chinese investors which includes GF Investments (HK), Huarong International, Huarong Rongde, SPDB International, China Everbright Limited, Everbright Securities and CMBC International.
Last year, ESR had also secured $750 million in equity commitments for its second Japan-focused logistics real estate fund, as well as $300 million from Ping An Real Estate, the property arm of Ping An Insurance (Group) Company of China, to co-invest in future Japanese logistics projects.
ESR was formed as a result of an all-share merger between e-Shang and the Redwood Group in 2016. According to a PERE report, the merger marked the “arrival of a credible challenger to Prologis, Global Logistic Properties (GLP) and Goodman” at an institutionally viable scale.
e-Shang was founded in 2011 by global private equity firm Warburg Pincus and two successful Chinese real estate entrepreneurs – Jeffrey Shen and Sun Dongping – while the Redwood Group was founded in 2006 by Stuart Gibson and Charles de Portes as a specialised logistics real estate firm and funds management business with operations in China and Japan.
Post-merger, ESR is said to be the second largest developer in North Asia, with more than US$5 billion of assets under management across China, Korea and Japan.
ESR, which focuses on developing modern, institutional quality logistics and industrial warehouses across major gateway markets in Asia, currently has 6.5 million square metres of projects in operation or under development in China, Japan and South Korea with an additional 6 million square metres in the pipeline. ESR has reportedly grown rapidly to become one of the largest third-party landlords for e-commerce companies, cold-chain logistics and modern warehouse operators.
This latest acquisition will likely see ESR leveraging its asset and property management expertise to improve CIT’s current property performance as well as grow the portfolio by actively assisting in sourcing accretive acquisition opportunities in Singapore and other ASEAN markets.
Jeffrey Shen and Stuart Gibson, co-CEOs of ESR, jointly said: “CIT is a well-respected industrial REIT which has grown significantly since its IPO in 2006. Our investment underscores our confidence in the underlying fundamentals and quality of CIT’s portfolio of assets, which provide us a strong platform for further diversification and growth into Singapore and key markets across Asia.”
“ESR’s interest is aligned with CIT’s management and Unitholders and we look forward to seeking opportunities to add value to all its stakeholders,” they added.
On 18 October 2016, an announcement was made by the CITM in SGX’s portal disclosing that e-Shang Infinity Cayman Limited had entered into a definitive option agreement to acquire up to 10.65 per cent of the outstanding CIT Units from three existing unitholders.
Upon exercise and completion of the acquisition of the CIT Units pursuant to the option agreement after the completion of the Transaction, ESR will become the second largest unitholder of CIT.
Ooi Eng Peng, Independent Chairman of CITM, said, “Having grown CIT from 27 assets worth S$0.5 billion during IPO to 49 assets worth S$1.4bn, the business is in a much better position to grow to the next level with ESR as the major shareholder of the Manager, where we can leverage off their industrial property experience and coverage.”
“We believe ESR will be the right shareholder of the Manager to assist CIT to transform into a top-tier Singapore-based regionally diversified industrial REIT. We will continue to proactively manage the existing properties of CIT and examine opportunities to maximise value for unitholders. Together we will work collaboratively to achieve our long-term vision for CIT and reinforce Singapore’s strategic position as a leading regional REIT Hub,” he added.
Future growth scenario
This strategic acquisition will see CIT transformed from an independent REIT to one backed by a sponsor with a large asset portfolio and a strong pipeline, as well as significant exposure to North Asian and East Asian logistics.
According to a DBS note, ESR’s strategic strength in modern warehousing will continue to benefit from the rapid growth of e-Commerce, with the acquisition also marking ESR’s initial foray into Southeast Asia.
The acquisition of CIT by ESR is also a precursor to further expansion across the region, especially given the rise of with the next few years likely to see similar M&A deals as REITs across the region consolidate in light of this
Its and affirms ESR’s plans to actively broaden its presence across Asia, with its citing in Singapore placing it at the heart of Southeast Asia and able to leverage on the growth story of Thailand, Indonesia, Malaysia and the Philippines surpassing $1 trillion in GDP. However, much of this outlook is predicted based on continued Chinese consumption and investment, which could face significant slowdown in the event of a debt bust.
The change of ownership of the trust manager does not trigger any covenants over CIT’s MTNs, whereas bank loans from HSBC and CIMB do have a reviewing clause in the event NAB’s ownership falls below 51 per cent. Consent to waive the clause from both banks have been received in relation to this transction.
At a press conference involving senior executives from Warburg Pincus, ESR and CIT, plans to increase CIT’s exposure abroad – with Australia highlighted due to its maturity and similarity in risk profile to Singapore’s logistics market – were highlighted.
There are also significant uncertainties at this time, due to the incoming administration of US President Donald Trump, his rhetoric regarding the abandonment and/or renegotiation of various trade arrangements with Asia Pacific states and the possibility of a China-US trade war, which would have a significant negative impact on Indo-Asia Pacific economies. And one that the US could very well lose.