Hong Kong-listed ESR Group has agreed to divest its ARA Private Funds (APF) business in Australia, Singapore, South Korea and the United States to entities which include an affiliate of Sumitomo Mitsui Finance and Leasing Co (SMFL) for US$270 million.
The transaction represents a key milestone in ESR’s stated strategy to streamline and simplify its business with a focus on New Economy real estate such as logistics, data centres and life sciences.
Post net asset adjustments, repayment of intra-group indebtedness, transaction costs and tax, the expected net proceeds to ESR are approximately US$290 million, which will be predominantly used to reduce the group’s financial indebtedness.
The APF business to be sold primarily consists of finite-life funds owning assets in traditional real estate sectors such as office, retail and hospitality. The transaction is structured as the sale of ESR’s interests in certain subsidiaries, with the purchase price calculated with reference to their net asset value and a market valuation for the funds management platform.
The transaction, subject to regulatory and other conditions, is expected to be completed by 3Q 2024.
First of divestments
Following a detailed review of the businesses acquired as part of the ARA Asset Management transaction, the ESR board identified up to US$750 million of non-core businesses to be divested, and this transaction represents the first of those divestments.
In total, 22 funds are being divested as part of this transaction, representing US$9.8 billion in AUM, with close to 100% of the assets in these funds sitting outside of ESR’s core New Economy focus.
LOGOS, the listed real estate investment trust (Reit) management business, the infrastructure / renewables platform, and the European platform, from the ARA Asset Management acquisition, do not form part of this transaction. As part of the transaction, the remaining ARA branded vehicles within the group will be rebranded to ESR.
Jeffrey Shen and Stuart Gibson, ESR group co-founders and co-CEOs, say: “The transaction represents a key milestone in ESR’s stated strategy to streamline its business and double down on its New Economy focus, which continues to be underpinned by high-growth industries like e-commerce, digital / AI and biopharma. These sectors are on the cutting edge of digitalization, science and technology and they will continue to drive the demand for and investment in quality logistics, high-tech industrial, data centres and life sciences properties.
“This is the first transaction as part of our stated strategy to divest up to US$750 million of non-core businesses and we remain confident in our ability to deliver on that result. The divestment will enable us to utilize other capital within the group to invest into core areas of growth and deliver long-term shareholder value.”
The group will recognize a gain on sale of approximately US$50 million in connection with the transaction.
Moses Song, current ARA CEO, will depart ESR to assume the role of CEO of ARAvest, the new holding company of APF, and will invest alongside MPS and Kenedix in the business.
ARAvest will continue to pursue a diversified, real assets investment management strategy in collaboration with its new sponsors, SMFL Group and Kenedix, with a focus on the Asia-Pacific region. The existing leadership team and staff of APF will transition into new roles with ARAvest.
