In an announcement, the companies said the assets under management of the combined entity will be $129 billion, with more than $50 billion to focus on so-called New Economy real estate such as data centres.
Under the terms of the deal, ESR will issue new shares and vendor loan notes worth $4.7 billion and pay ARA another $519 million in cash, which will be partly funded by a $250 million placement to Sumitomo Mitsui Corporation (SMBC).
All ARA shareholders will roll over their ownership interest into ESR and have agreed to a lock-up of six months. ESR founders and ARA’s co-founder and deputy chairman John Lim have also committed to a lock-up of up to 36 months on a staggered basis.
Lim, together with two other representatives from each of Cheung Kong Group and SMBC, will be appointed to ESR’s board of directors. All ARA Group and LOGOS senior management will join the enlarged ESR Group, according to the terms of the deal.
The deal will merge ESR with its industrial competitor LOGOS and gives ESR management control of ARA’s private and public real estate fund management business. The new strategic shareholders from ARA that will support the enlarged ESR Group include Warburg Pincus, the previous co-founder of ESR; SMBC; Straits Trading Company; and Ivanhoe Cambridge, a long-term shareholder of LOGOS.
“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,” ESR chairman Jeffery Perlman said in a statement. “The enlarged ESR Group is even better positioned to capture this outsized market opportunity.”
In addition to serving as chairman of ESR, as a managing director and head of Southeast Asia for Warburg Pincus, Perlman is also a director of ARA. Warburg Pincus, which raised its shares in ARA to 48.7% in May, previously backed ESR before it sold all of its shares in the company earlier this year, an ESR spokesperson told DealStreetAsia in an earlier interview.
The transaction, which was approved unanimously by ESR’s board and 46% of existing ESR shareholders, is still subject to ESR shareholder approval at an EGM to be convened in due course, according to the announcement.
Founded in 2002 and listed on the SGX between 2007 and 2017, ARA claims to be the largest real asset manager in Asia-Pacific along with its subsidiary LOGOS. Warburg Pincus owns 48.7% of the firm.
ESR, on the other hand, is the largest Asia-Pacific-focused logistics real estate platform by gross floor area and by the value of the assets owned directly and through its funds and investment vehicles.
As of the end of last year, ESR’s assets were valued at approximately $30 billion. Its platform spans China, Japan, South Korea, Singapore, Australia, India, and Vietnam.
In April this year, ESR partnered with Singapore’s GIC to acquire the large Australia logistics portfolio of US fund management giant Blackstone in a landmark A$3.8 billion ($3 billion) deal. The sale marked the largest real estate transaction in Australia in five years, according to data compiled by Bloomberg.