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

(This August 7 story has been refiled to clarify in paragraph four that announcement is from a unit of ESR, not ESR itself)

SINGAPORE (Reuters) - Asian logistics developer e-Shang Redwood is in advanced talks to buy struggling Sabana REIT, sources familiar with the process said, as a first step in the consolidation of Singapore’s $3.5 billion mid-cap industrial trusts.

The developer (ESR) has been conducting due diligence on Sabana Shariah Compliant Industrial Real Estate Investment Trust (REIT) and is set to complete talks in a few months, the sources said, adding that no deal had been agreed yet.

As one of Asia’s biggest owners of logistics properties with assets in China, Japan and South Korea, ESR wants to spearhead a consolidation among Singapore real estate trusts by taking advantage of its scale and deep funding, the sources said.

In response to the Reuters story, both Sabana and a unit of ESR issued regulatory statements and confirmed they were holding discussions and exploring options in connection with Sabana’s strategic review. However, they said there is no assurance that any transaction will materialize from the talks.

“Pursuant to the ongoing strategic review exercise, the manager is currently in discussions with ESR Funds Management (S) Ltd in its capacity as manager of ESR-REIT to explore options in connection with our strategic review,” Sabana told the Singapore exchange late on Monday.

On Tuesday, ESR Funds told the exchange that it had been approached by Sabana.

Sabana REIT’s units on the Singapore stock exchange jumped 10 percent to their highest in nearly four months on Monday before the company asked for a trading halt. More than 6.5 million units traded, seven times the 30-day average volume.

The units were flat on Tuesday morning after the resumption of trade.

ESR, which is backed by private equity firm Warburg Pincus, said in March it had taken 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.

ESR has bought into other industrial real estate investment trusts recently. Late last year it agreed to buy 10.65 percent of Cambridge Industrial Trust, which was later renamed ESR-REIT. In January, ESR also bought an 80 percent indirect stake in the manager of that trust.

ESR’s purchases come as smaller industrial trusts bear the brunt of falling rents and higher vacancies as troubled offshore marine services firms and manufacturing companies cut operations in a lackluster economy.

“These are strategic investments by ESR. The next step is a consolidation of sub-scale REITs,” said one of the sources.

Warburg Pincus, ESR and ESR-REIT declined to comment. The sources requested anonymity as the talks are private.


Singapore’s industrial REITs sector is crowded with smaller companies such as Sabana REIT, ESR-REIT and Soilbuild Business Space REIT which have found it challenging to grow in the last few years, analysts said.

“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 was 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, Mapletree Logistics Trust and Mapletree Industrial Trust 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 to nine months before we see any recovery,” said Moody’s analyst Rachel Chua, adding that business parks were expected to fare better.

Sabana came under criticism from some investors after its already-underperforming units fell further in December following a fund raising announced by the company to finance acquisitions.

Sabana’s manager then terminated the acquisitions and set up a strategic review to explore options to boost its performance. Last week, Sabana said it was still evaluating non-binding proposals from several parties.

Reporting by Anshuman Daga; additional reporting by Aradhana Aravindan in Singapore and Gaurav Dogra in Bengaluru; Editing by Muralikumar Anantharaman and David Clarke