Cambridge Industrial Trust (CREIT SP) - DBS Research 2017-01-19: e-Shang Redwood to acquire 80% indirect interest in the Manager

Cambridge Industrial Trust (CREIT SP) - DBS Vickers 2017-01-19: e-Shang Redwood to acquire 80% indirect interest in the Manager CAMBRIDGE INDUSTRIAL TRUST J91U.SI

Cambridge Industrial Trust (CREIT SP) - e-Shang Redwood to acquire 80% indirect interest in the Manager

  • e-Shang Redwood (ESR)’s subsidiary will acquire an 80% indirect interest in the Trust Manager of Cambridge Industrial Trust (CIT).
  • ESR is the second largest developer in North Asia focusing on warehouses, with 6.5m sqm of projects.
  • We are positive for CIT to have a strong Sponsor who should benefit from the growing e-commerce sector.
  • Pending a detailed strategic plan, we maintain our HOLD call.

What’s New 

  • nabInvest Capital Partners Pty Limited (a wholly-owned subsidiary of National Australia Bank Limited) and CREIM Limited (a wholly-owned subsidiary of Oxley Global Limited) have entered into a binding agreement today for the sale of their aggregate 80% indirect interest in the Trust Manager of CIT to e-Shang Infinity Cayman Limited (“Infinity”), a subsidiary of e-Shang Redwood Limited (“ESR”). 
  • The Transaction also includes Infinity acquiring a 100% indirect interest in Cambridge Industrial Property Management Pte. Ltd., the Property Manager of CIT. The transaction is expected to be concluded within this week.
  • This follows the announcement made on 18 October 2016, that Infinity had entered into a definitive option agreement to acquire up to 10.65%1 of the outstanding CIT units from three existing unitholders. Upon exercise and completion of the acquisition of the CIT units pursuant to the option agreement after the completion of the acquisition, ESR will become the second largest unitholder of CIT.

Who is e-Shang Redwood (ESR)? 

  • ESR is a leading pan-Asia logistics real estate developer, owner and operator. ESR focuses on developing modern, institutional quality logistics and industrial warehouses across major gateway markets in Asia. ESR was formed as a result of a merger between e-Shang and the Redwood Group in January 2016. Following the merger, ESR has become the second largest developer in North Asia with more than US$5 billion of assets under management. It has 6.5 million square metres of projects in operation or under development in China, Japan and South Korea with an additional 6 million square metres in the pipeline.
    • E-Shang: Founded in 2011 by global private equity firm Warburg Pincus and two Chinese real estate entrepreneurs – Mr. Jeffrey Shen and Mr. Sun Dongping. It develops institutional-quality warehouses in China and South Korea, and is one of the largest third-party landlords for the leading e-commerce companies, cold-chain logistics, and modern warehouse operators.
    • The Redwood Group: Founded in 2006 by Mr Stuart Gibson and Mr Charles de Portes, it is a specialised logistics real estate firm and fund management business with operations in China and Japan.
  • On 4 January 2017, ESR closed a US$300m pre-IPO investment from a consortium of Chinese investors which includes GF Investments (HK), Huarong International, Huarong Rongde, SPDB International, China Everbright Limited, Everbright Securities and CMBC International. The latest investment comes within months of the company raising US$750 million in equity commitments for its second Japan-focused logistics real estate fund. Just prior to that, the company had secured US$300 million from Ping An Real Estate, the property arm of Ping An Insurance (Group) Company of China, to co-invest in future Japanese logistics projects.2 

The Impact 

  • We are positive on this acquisition as CIT will be transformed from an independent REIT into one that is backed by a Sponsor with a large asset portfolio and a strong pipeline. We believe ESR’s strategic strength in modern warehousing will continue to benefit from the rapid growth of e-commerce and Asia. The acquisition marks ESR’s initial foray into Southeast Asia and affirms ESR’s plans to actively broaden its presence across Asia.
  • We understand that the change of ownership of the Trust Manager does not trigger any covenants over CIT’s MTNs. However, bank loans from HSBC and CIMB do have a reviewing clause in the event that NAB’s ownership falls below 51%. Consent to waive the clause have been received from both banks.
  • As a detailed strategy has yet to be announced, we maintain our HOLD call for now, with a TP of S$0.54. 
  • CIT will be announcing its quarterly results on 25 January 2017 before the market opens.

NB1: Based on 1,304,434,416 issued units in CIT as at the date of this announcement.
NB2: Source: 中国经济网 www.ce.cn

Singapore Research Team DBS Vickers | Mervin SONG CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2017-01-19
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.540 Same 0.540