ESR Seeks to Raise $290M From China REIT IPO

Jiangsu Friend Phase III is the REIT’s largest asset by floor area (Image: ESR)

Warehouse developer and fund manager ESR is seeking to raise RMB 2.1 billion ($290 million) from the initial public offering of the group’s inaugural mainland-listed industrial REIT.

The final offer price of ESR China REIT’s units is RMB 2.628 each, with Hong Kong-listed ESR subscribing for a minimum 39.37 percent and a maximum 41.42 percent of total units, the group said Tuesday in a filing. The Shanghai-listed REIT’s seed assets, consisting of three ESR-owned sheds in Jiangsu province, are being spun off from the group at a consideration of RMB 1.97 billion.

“Upon completion of the proposed spin-off, the company’s interest in the project company will be reduced from 100 percent to not more than 41.42 percent and the project company will be deconsolidated from the group’s consolidated financial statements,” ESR said in the filing.

The offering is expected to close on 19 December, with the listing taking place around early January, according to Chang Rui Hua, managing director of business management and investment for ESR Hong Kong, who is also responsible for the ESR C-REIT IPO.

Low End of Range
The IPO was launched last month after China’s top securities regulator gave the go-ahead to issue 800 million units in the offering, with the indicative price range of RMB 2.628 to RMB 3.2 per unit representing an offering size of up to RMB 2.6 billion.

Chang Rui Hua of ESR

The final offering size at the low end of the indicative range translates to a higher sum than the spin-off consideration, which was reached by taking the size of the offering and subtracting certain funds required to be reserved by the REIT under mainland rules and a shareholder loan to be provided to the project company, as well as relevant taxes, audit fees and legal fees.

Also known as AVIC ESR Warehouse and Logistics Infrastructure REIT, ESR C-REIT is seeded with three logistics facilities collectively dubbed Jiangsu Friend, located a 45-minute drive west of Shanghai in the Jiangsu provincial city of Kunshan. Beijing-based AVIC Fund Management is the trust’s manager, while China Merchants Securities is serving as financial advisor.

Developed as a three-building logistics park, Jiangsu Friend Phases I-III comprise more than 426,000 square metres (4.6 million square feet) of total floor area. The portfolio boasts a five-year average occupancy rate of over 90 percent and multinational tenants in sectors such as logistics, e-commerce and fast-moving consumer goods, including luggage maker Samsonite and Havi, the supply chain manager for KFC and Pizza Hut in China.

The three properties represent some of the developer’s best assets in China, ESR co-founder and co-CEO Stuart Gibson said in June.

As sponsor and project manager, ESR will provide the REIT with a future pipeline of projects for acquisition from a China portfolio of more than 170 assets valued at over $30.7 billion and spanning more than 14.9 million square metres of gross floor area.

Buyout Looms
The successful pricing of ESR’s first mainland REIT comes as a consortium of investment firms including Starwood Capital, Sixth Street Partners, SSW Partners, the Qatar Investment Authority and Warburg Pincus has made a binding offer to buy out ESR in a transaction valuing the HKEX-listed group at nearly $7.1 billion.

Announced last week, the offer arrived more than six months after Starwood Capital, Sixth Street Partners and SSW Partners first proposed to buy out ESR, with the since-expanded consortium having gained acceptance of the proposal from more than disinterested shareholders.

Formed by the 2016 merger of China’s E-Shang and Japan-based Redwood Group, ESR has grown into an investment manager with $154 billion in assets under management as of 30 June. The buyout would mark the largest privatisation from the Hong Kong stock exchange since 2021.