Warburg Pincus-backed ESR in talks to buy Singapore's Sabana REIT-sources

Alpha Integrated Real Estate Investment Trust

07/08/2017 24:00

By Anshuman Daga 
    SINGAPORE, Aug 7 (Reuters) - Warburg Pincus-backed e-Shang 
Redwood (ESR) is in advanced talks to buy struggling Sabana 
Shariah Compliant Industrial REIT  SABA.SI , sources familiar 
with the process said, in a likely first consolidation step in 
Singapore's $3.5 billion mid-cap industrial trusts sector.   
    ESR, an Asian logistics developer, has been conducting due 
diligence on Sabana REIT and is set to complete its talks in a 
few months, said the sources. They, however, said ESR has not 
yet agreed on terms of a deal. 
    ESR announced in March a 5 percent stake in Sabana REIT, 
which has assets of about S$1 billion ($735 million) comprising 
warehouses, logistics and high-tech industrial properties. 
    Late last year it agreed to buy up to 10.65 percent of 
another industrial REIT, Cambridge Industrial Trust, later 
renamed ESR-REIT  ESRR.SI . In January, ESR also bought an 80 
percent indirect stake in the manager of that trust. 
    ESR's stake purchases in Singapore REITs come as smaller 
industrial trusts bear the brunt of falling rentals and higher 
vacancies, with troubled offshore marine services firms and 
manufacturing companies cutting operations in a lacklustre 
economy. 
    "These are strategic investments by ESR. The next step is a 
consolidation of subscale REITS," said one of the sources. 
    Warburg Pincus, ESR, Sabana and ESR-REIT declined to 
comment. The sources requested anonymity as the talks are 
private. 
    As one of Asia's biggest owners of logistics properties with 
assets in China, Japan and South Korea, ESR is aiming to 
spearhead a consolidation among Singapore REITS by taking 
advantage of its scale and deep funding, the sources said. 
    Singapore's industrial REITS sector is crowded with smaller 
companies such as Sabana REIT, ESR-REIT and Soilbuild Business 
Space REIT  SBSR.SI  which have found it challenging to grow 
their assets in the last few years, analysts said.  
    "I think they should either come together or sooner or later 
they could be bought out by someone who has deeper pockets and 
then consolidate across pan-Asia," said Alan Cheong, senior 
director at consultancy Savills Research," referring to smaller 
REITs. 
    REITs get their earnings from rentals and pay out most of 
their taxable income as dividends to investors. 
    One of the sources said ESR is expected to hold discussions 
with large shareholders in other Singapore REITS with a view to 
consolidating ownership in the companies. 
    Sabana REIT and ESR-REIT are trading at discounts to their 
book values while Soilbuild is trading at book value. 
    Larger firms such as Temasek-owned Ascendas REIT  AEMN.SI , 
Mapletree Logistics Trust  MAPL.SI  and Mapletree Industrial 
Trust  MAPI.SI  are coping much better in the downturn. 
    "Most of the smaller guys operate warehouses, logistics 
properties and factories where the occupancy has been declining 
and the challenges will continue easily over six-nine months 
before we see any recovery," said Moody's analyst Rachel Chua, 
adding that business parks are expected to fare better. 
    Sabana came under criticism from some investors this year 
after its already-underperforming unit price fell further in 
December following a fund raising announced by the company to 
finance its acquisitions. 
    Then Sabana's manager set up a strategic review to explore 
options to boost Sabana's performance and also terminated the 
acquisitions. Last week, Sabana said it was still evaluating 
non-binding proposals from several parties. 
 
 (Reporting by Anshuman Daga in SINGAPORE; Additional reporting 
by Aradhana Aravindan in SINGAPORE and Gaurav Dogra in 
BENGALURU; Editing by Muralikumar Anantharaman) 
 ((anshuman.daga@tr.com; +65 64035676; Reuters Messaging: 
anshuman.daga.thomsonreuters.com@reuters.net)) 
 
Keywords: SABANA SHARIAH M&A/ESR