During an analyst and investor briefing on Aug 20, ESR Cayman’s management received a few questions on its plans for ARA Asset Management’s REITs, given that not all the latter’s businesses provided synergies.
Indeed, during an interview with The Edge Singapore, and also in various briefings, ESR Cayman chairman Jeffrey Perlman articulated that Logos is the jewel in ARA’s crown. With Logos, ESR Cayman’s development work in progress doubles to US$10 billion ($13.5 billion).
“We think Logos is much more complementary than competitive, and offers what we call kind of two-headed dragon in terms of the opportunity. Australia was a great example. In the last six months, we were able to acquire both the landmark milestone acquisitions under ESR, whereas Logos was able to secure the largest development opportunity in Australia. The combination of those in just the six-month period, we feel, would be something that even as one platform, we would not have been able to probably do,” Perlman describes.
When asked which parts of ARA are likely to be core and non-core, Perlman acknowledges that not everything is going to be 100% core. In 2018, prior to ESR Cayman’s IPO, it acquired Charter Hall’s Commercial & Industrial Property (CIP), including its construction business, for A$102.5 million ($100.7 million). In October 2020, ESR Cayman divested CIP Construction in a management buyout.
”We recently divested the construction arm of the [CIP] business. It’s not something that we felt was core to our long-term strategy in any of our markets, let alone Australia. In any acquisition, there are some pieces that may not fully align with the long-term vision of the platform,” Perlman says.
When asked specifically about ARA Logos Logistics Trust, ESR-REIT and Sabana Shariah Compliant REIT, Perlman points out that these are listed REITs, which have their own managers and unitholders. “We continue to believe that economies of scale will have lower cost of capital and ability to attract more investors, and deliver hopefully longer-term stronger returns. But obviously, there are merits of looking at it through multiple different lenses as to what is the best path forward.”
ARA’s and ESR Cayman’s management “will look strategically at the pieces that are likely to be most valuable and align with ESR Cayman’s long-term vision, and then obviously look to see potentially where we may look to divest some of those non-core areas”, Perlman indicates.
Market observers point out that Suntec REIT, in which Straits Trading holds 11% or so, and ARA around 8%, could be a candidate for a divestment to Straits Trading. Elsewhere, the assets of ARA US Hospitality Trust could be sold and proceeds returned to unitholders. The three Hong Kong-listed REITs are sponsored by CK Asset Holdings. As such, the ownership structure is unlikely to change.
Straits Trading itself has benefitted from the ESR Cayman transaction. From the beginning of 2014 to the beginning of 2021, its total returns were –42.6%, according to Bloomberg. With dividends reinvested, the negative return falls to –32.5%. However, after the ESR Cayman transaction, Straits Trading’s total returns are a positive 8% over a 7½-year period.
