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ARA Private Funds will be shifting out of ESR’s Singapore headquarters in Suntec City (Image: Suntec City)
Two years after completing its buyout of ARA Asset Management, ESR is selling the Singapore-based company’s private fund management business as it hones its focus on assets linked to Asia Pacific’s fastest growing sectors.
The Hong Kong-listed real estate giant is selling ARA Private Funds, which manages 22 private vehicles, to Sumitomo Mitsui Finance and Leasing Co at an enterprise value of $270 million, ESR said in a statement to the bourse early on Monday. The price represents a gain on disposal of approximately $50 million, with ESR indicating that it is achieving an “attractive multiple” on the deal.
“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,” said ESR Group co-founders and co-CEO’s Jeffrey Shen and Stuart Gibson. “These sectors are on the cutting edge of digitalisation, 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.”
The ARA private funds primarily own assets in traditional sectors including office, retail and hospitality, according to the statement, with ESR indicating that it has identified up to $750 million in potential non–core divestments following a strategic review.
Out with the Old Economy
The ARA Private Funds business spans Australia, Singapore, South Korea and the US and consists primarily of finite-life vehicles which manage $9.8 billion in assets, with close 100 percent of those holdings described as outside of ESR’s focus on sectors benefiting from new technologies and innovation to enhance their value.
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Stuart Gibson and Jeffrey Shen of ESR (Image: ESR)
ESR has signed a sale and purchase agreement with entities under Sumitomo Mitsui Finance and Leasing Co for the disposal of its interest in subsidiaries holding the funds with the purchase price calculated in relation to their net asset value and a market valuation for the fund management platform, ESR said in the statement.
The sale implies a multiple for ESR of approximately 20-times earnings before interest, taxes, depreciation, and amortisation (EBITDA), according to sources familiar with the transaction. The approximately $290 million in net proceeds expected from the sale will be used primarily to reduce debt, ESR said.
The private fund business is being sold into a new entity named ARAvest Pte Ltd, with current ARA chief executive Moses Song departing ESR to take on the CEO role at the new company. Song is investing in the new entity alongside SMFL MIRAI Partners (Singapore) and Japanese fund manager Kenedix, which ARA jointly acquired with Sumitomo Mitsui Finance and Leasing Co in a $1.3 billion buyout in 2020.
The transaction is subject to regulatory and other conditions and is expected to be completed by the third quarter.
More to Come
The divestment of ARAvest follows a review of the businesses ESR acquired as part of the ARA buyout, with the deal represented the first in up to $750 million in divestments of non-core businesses identified by ESR’s board.
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Moses Song will be leaving ESR to head ARAvest
“This is the first transaction as part of our stated strategy to divest up to $750 million of non-core businesses and we remain confident in our ability to deliver on that result,” ESR’s Shen and Gibson said. “The divestment will enable us to utilise other capital within the Group to invest into core areas of growth and deliver long-term shareholder value.”
Other key pieces in the ARA buyout, including Australia-based logistics developer and fund manager Logos, ARA’s listed REIT management business, the company’s infrastructure and renewable energy platform and ARA Europe are not part of the divestment ESR emphasised.
As part of the transaction, the remaining ARA branded vehicles within the Group will be rebranded to ESR.
Friends in Japan
Following the divestment, ARAvest will continue to focus on the Asia Pacific region as it pursues a diversified, real assets investment management strategy in collaboration with its new sponsors, SMFL Group and Kenedix, according to the statement.
Sumitomo Mitsui Finance and Leasing Co, is a long-time partner of ARA with the companies having worked together in both Singapore and Japan.
SMFL teamed up with ARA in 2020 to buy out Kenedix, one of Japan’s most prominent real estate fund managers, in a JPY 132 billion (then $1.3 billion) deal. ARA had been Kenedix’ largest shareholder with just over 20 percent of the company prior to that deal with SMFL taking a 70 percent stake in the firm through the buyout, while ARA upped its holding to 30 percent.
In 2021 SMFL’s parent company, Sumitomo Mitsui Financial Group, led a $500 million financing round for ARA as the company was said to be mulling a public listing.
More recently, ARA sold its half-stake in the Lazada One office building on Singapore’s Bras Basah Road to a fund backed by SMFL Mirai Partners for S$362.4 million (then $269.3 million) in March of last year. One month later ARA and Kenedix teamed up to buy a warehouse in Singapore’s Jurong West area for S$47 million.
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