Even by Hong Kong standards, real estate fund manager ESR (1821.HK), opens new tab is having a rough time. A potential buyout looks well-timed, but backers like Canada’s OMERS Administration can push for a high premium.
The $6.3 billion ESR manages real estate assets including data centres and warehouses across mainland China, Japan, South Korea, Australia, Singapore and elsewhere. At the time of its stock market debut five years ago, e-commerce – particularly in China – was booming, making ESR’s new economy logistics assets hot property. But its stock is down 60% from a 2021 peak and 30% since the start of last year. Over the same period, the Hang Seng (.HSI), opens new tab has fallen one third and 5% respectively.
One reason is the China discount, despite ESR’s geographic reach. Another is the company’s complex business and lack of peers in Hong Kong. In 2021, ESR bought ARA Asset Management in a $5.2 billion deal, giving it a huge portfolio of commercial and retail properties. That added to ESR’s already complicated business: on top of developing properties, it also raises external capital to co-invest in funds and real estate investment trusts. Rising interest rates and debt costs have hurt ESR too.
The company is taking steps to revamp its business, including, opens new tab selling up to $2 billion-worth of assets to refocus on logistics and pay down debt. ESR reckons that its moves can help bring down its net-debt-to-assets ratio to the low 20% range in the medium term, from over 30% last year. Encouragingly, ESR’s fund management EBITDA and its assets under management both increased last year.
Against this backdrop, a consortium, opens new tab including U.S.-based private investment firms Starwood Capital and Sixth Street Partners proposed in late April to take it private. Financial details were not disclosed, but the buyer group will probably offer a 20% to 30% premium to the stock’s undisturbed price of HK$8.35, Reuters reported, citing sources. Existing investors including Warburg Pincus also have an option to roll their shares into the delisted entity.
At a 30% premium, that implies an enterprise value of nearly $11 billion, or some 9 times forecast EBITDA, per LSEG. That’s well below peers such as Australia’s Goodman Group’s (GMG.AX), opens new tab 26 times and the 15 times for Singapore’s Capitaland Investment (CAPN.SI), opens new tab. ESR’s long-suffering shareholders can ask for more.
CONTEXT NEWS
ESR, a Hong Kong-listed real estate fund manager with $156 billion of assets under management, said on May 13 that a group of investors had proposed to take it private.
ESR, which also manages commercial properties and real estate investment trusts, said a consortium including U.S.-based private investment firm Starwood Capital and investor Sixth Street Partners made a non-binding, conditional proposal on April 25 for a potential privatisation. The company did not disclose financial details.
Existing investors would have the option to take up the cash offer or roll their shares into the future private company, ESR said. The company’s co-founders, who hold a combined 7% stake and Warburg Pincus, which owns 14%, are “welcoming” of the indicative bid, according to the company.
ESR shares closed up 26% at HK$12.6 on May 14 and have since declined to HK$11.7.
