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Property

Hong Kong property group ESR to buy rival ARA for $5.2bn

Deal poised to create world's third-biggest real estate manager

ESR will partly fund its takeover of ARA by selling shares to Sumitomo Mitsui Banking Corp. (Courtesy ESR Cayman) 

HONG KONG -- ESR Cayman is poised to become the world's third-largest listed real estate manager after agreeing to buy rival ARA Asset Management for $5.2 billion.

Hong Kong-listed ESR will buy its Singapore-based peer by issuing $4.29 billion worth of new shares at 27 Hong Kong dollars ($3.47) apiece, a 2.5% discount compared to the close on Wednesday, plus $519 million in cash from its own funds, debt and a share placement, it said in a statement. The balance will be offered in notes convertible to shares.

Shares in ESR ended the Thursday morning session 10% lower at HK$24.95. The shares are at their lowest level in nearly a month and extended losses for the year to 6%. Shares in Singapore conglomerate Straits Trading, which is selling its stake in ARA through the deal, rose 13% in the SGX. ARA is not listed.

The deal will bring together two of the largest real estate managers in the Asia-Pacific region, with a focus on so-called new economy assets such as data centers. The combined assets under management will reach $129 billion, of which over $50 billion will be in new economy real estate, making it the largest such platform in the region, ESR said.

"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," Jeffrey Perlman, chairman of ESR, said. ESR can "help them divest these assets and captively redeploy back into new economy real estate."

Global investors are increasingly deploying capital through a limited number of large-scale managers. Last year 80% of funds raised were over $1 billion, underscoring "the trend of larger managers gaining greater share of fund commitments," ESR said.

ESR, which is backed by Chinese online retailer JD.com, the Ontario Municipal Employees Retirement System and Singapore sovereign wealth fund GIC, will raise $250 million by selling 76.7 million new shares to Sumitomo Mitsui Banking Corp. at HK$25.35 per share. The Japanese banking group, which already holds stakes in ARA shareholders, will end up with a 4.6% stake in ESR after the transaction, which is expected to close by the end of 2021 or the first quarter of 2022. The remaining $269 million of the cash component will come from debt and internal resources, it said.

ESR went public in 2019 after raising about $1.8 billion in Hong Kong. The company's shares have climbed 31% in the past year. ARA Asset Management was delisted from the Singapore stock exchange in 2017 after a buyout by a consortium led by Warburg Pincus. The buyout group included founder John Lim and Hong Kong billionaire Li Ka-shing's CK Asset Holdings.

In April, ESR partnered with GIC to enter into a deal to buy a portfolio of warehouse and logistics assets in Australia from Blackstone Group for about $2.8 billion.

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