ESR Group divests ARA Private Funds business for US$270 million

ESR Group has entered into share purchase agreements to divest its ARA Private Funds (APF) business in Australia, Singapore, South Korea and the United States at an agreed enterprise value of US$270 million.

The deal is part of the asset manager’s strategy to divest up to US$750 million of non-core businesses following a detailed review of the businesses acquired after it bought ARA Asset Management for US$5.2 billion in 2022.

The asset manager said in a press statement on Monday (Mar 11) that the APF business primarily comprises finite-life funds that own assets in traditional real estate sectors, including office, retail, and hospitality.

The buyers include Sumitomo Mitsui Finance and Leasing Co affiliate, SMFL MIRAI Partners Singapore (MPS) and Kenedix.

Businesses excluded from the transaction include Logos, the listed real estate investment trust management business, the infrastructure and renewables platform and the European platform acquired from the acquisition of ARA Asset Management.

The management platform for Singapore-listed ARA US Hospitality Trust also does not form part of the transaction.

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Moses Song, chief executive of ARA, will leave ESR to assume the role of chief executive at ARAVest – the new holding company of APF – and invest alongside MPS and Kenedix. The existing leadership team and staff of APF will also transition into new roles with ARAvest.

ESR Group said it will recognise a US$50 million gain on sale in connection with the transaction, which is subject to regulatory and other conditions. It expects to close the deal by the third quarter of 2024.

It estimates net proceeds of US$290 million after net asset adjustments, repayment of intra-group indebtedness, transaction costs, and tax. The proceeds will primarily be used to pare the group’s debts, it noted.

ESR Group co-founders and co-chief executives Jeffrey Shen and Stuart Gibson said this is the first transaction as part of the group’s strategy to divest its non-core businesses.

This will also allow the group to “double down” on its New Economy focus, underpinned by high-growth industries like e-commerce, digital, artificial intelligence and biopharma.

The group is planning to divest 22 funds representing US$9.8 billion in assets under management. It said that nearly all the assets in these funds sit outside the group’s core New Economy focus.

Citi analyst Ken Yeung believes the latest transaction will help ESR concentrate on its new-economy sectors, together with debt reduction.

“With a total US$750 million non-core assets identified, we expect such actions should help ESR’s valuations through better concentration into its core areas of growth,” he added.