Hong Kong-listed logistics real estate platform ESR Cayman Limited will acquire the entire share capital of ARA Asset Management for US$5.2 billion, the two companies announced on Thursday ( August 5 ), creating Asia-Pacific’s largest real asset manager powered by the New Economy.

The combined entity will have assets under management of US$129 billion, more than 2x the next largest real asset manager in the region and making it the third largest listed real estate investment manager globally.

Founded in 2002, Singapore-based ARA has gross AUM of US$95 billion, the largest in the region. It 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.  

It 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, South Korea and New Zealand. 

On the back of its continued expansion across the region, LOGOS' total AUM has nearly doubled over the past two years to US$17 billion, comprising over 8.9 million square metres of property either owned or under development across 26 ventures, including the Singapore-listed ARA LOGOS Logistics Trust.

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 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.

Technology-enabled

Following the completion of the transaction, ARA's business will be combined with ESR's platform. It will have a combined AUM of US$129 billion, of which over US$50 billion will be in New Economy real estate, making it the largest such platform in the region. Based on the financial results for 2020, over 80% of the enlarged ESR Group's EBITDA 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.

Commenting on the landmark deal, ESR chairman Jeffrey Perlman says: "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 financialization 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 number-one 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,” he adds.

Jeffrey Shen and Stuart Gibson, ESR co-founders and co-CEOs, note: "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 sq m and we will have 'dry powder' of US$7 billion to deploy into new logistics and data centre projects." 

John Lim, ARA co-founder and deputy chairman, says: "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."

Lim, together with a representative each from CK Asset Holdings and Sumitomo Mitsui Banking Corporation, 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.

Stock and cash

Pursuant to the acquisition agreement, ESR will acquire 100% share capital of ARA via a 90% stock and 10% cash transaction. The stock deal comprises US$4.7 billion in new ESR shares and vendor loan notes. The cash portion includes US$519 million in cash funded by US$250 million share placement to SMBC and US$269 million in debt and internal resources.

All ARA shareholders will roll over their ownership interest into ESR and have agreed to a lock-up of six months. It is also contemplated at the close of the transaction that ESR's founders and ARA's Lim would have committed to a lock-up of up to 36 months on a staggered basis.

The transaction is subject to customary closing conditions and regulatory approvals. It is also subject to ESR shareholders’ approval at an EGM to be convened in due course. ESR's founders along with OMERS and JD.com with an aggregate shareholding of 46% have provided irrevocable undertakings to vote in favour of the transaction.

The deal is expected to close by the end of 2021 or the first quarter of 2022.

Morgan Stanley Asia is acting as financial adviser and Freshfields Bruckhaus Deringer is serving as legal counsel to ESR. United Overseas Bank is providing certain debt and financing-related advice to ESR.

Citigroup Global Markets Singapore is acting as lead financial adviser to ARA, DBS and OCBC Bank have also been appointed as financial advisers, while Latham & Watkins is serving as legal counsel to ARA.