In 2014 Signature Global Asset Management opened its Hong Kong office by sending one of our employees, Gorlen Zhou, to the region to open an office. The goal was to establish presence for our group in the Asian markets by developing local expertise and strong relationships with corporations, trading desks, research analysts and investment bankers. This, among other things would allow our Toronto office to have boots-on-the-ground insights and access to opportunities. Gorlen and Signature have spent the past several years building the team up further from there, and our Asian platform continues to grow.
Our real estate team has been no stranger to collaborating with our Asia team. However, the most recent deal we participated in has been the most significant exhibition of collaboration between us to date.
In early 2019 Gorlen reached out to us highlighting what he believed to be a very attractive and unique investment opportunity. ESR Cayman – the manager of the largest Asia-Pacific focused logistics real estate platform with over US$14 billion of assets under management (AUM) was looking to enter the public markets via an IPO to raise US$1.5B. The brokers leading the deal knew of Signature and our sizable global real estate platform, and they knew our Hong Kong office well, so they approached Gorlen.
The deal immediately looked interesting to us. Prologis is the largest industrial warehouse company in the world, and it is one of our largest positions. Global Logistics Properties (GLP), a formerly publicly traded warehouse company focused on global markets including Asia was also a company we had owned before it was taken private in 2017. We have spent many years studying and investing in global warehouse companies and are increasingly bullish on the sector. ESR Cayman was formed in recent years by former executives from Prologis and GLP. Their business is asset management of industrial properties. We like this business model because of its capital-light nature, whereby ESR doesn’t have to own 100% of all properties it operates and develops. Rather, it raises third party capital from investors to buy and develop logistics properties and collects a fee to manage them. Secondly, Asia is drastically undersupplied in high-quality logistics warehouse facilities. This, coupled with a rising income population, significant e-commerce growth, and large amounts of money seeking to invest in industrial real estate, leads to a solid fundamental setup for the asset class. Our Hong Kong and Toronto offices agreed – this opportunity merited more work.
The due diligence
We conducted intensive research on the company. Gorlen met with the management team several times and visited their assets in Korea and China. I spoke with the management team several times and visited their team and properties in Singapore. I was also connected with their leadership in India to gain an understanding of their opportunity there. I met with several of their competitors to gain a better understanding of the regional opportunity. It is large. To sanity-check the opportunity I spoke with Phoebe Hong, our consumer specialist in Asia who provided me with good perspective on the logistics needs of the e-commerce players in the region.
The conclusion and the result
We reconvened and concluded that this was one of the most attractive opportunities in our global real estate universe. After back-and-forth discussions on pricing we liked the price that the deal was coming out at. After a withdrawn IPO attempt in the summer due to global market turmoil and noise around the Hong Kong protests, ESR came back to us in October (half a year after we first started doing the work), ready to do the IPO. There was a wrinkle this time though – OMERs, one of the larger and more sophisticated global real estate players, was coming in to take a $600M cornerstone position in the deal. Another large global player was anchoring the deal with a $400M order. While this was an exceptional endorsement for the deal, this left very little for the large global investor community to get a hold of. In fact, we understood that the deal was over seven times over-subscribed. The work we had been able to do so early on allowed us to move swiftly on our order. We spoke with the management team and bankers several times that week and found that the interest we had shown in the company, and the relationship we developed over the previous several months had paid off – we were given one of the top allocations to the deal in the world. We understand that we were the only Canadian investor in the deal other than OMERs. We look forward to seeing what our newest investment can do.
As I mentioned in my April blog on Embassy Office Parks, the Signature real estate team is comprised of three people, however it is the full support of our 50-plus team members that allows us to access such unique global opportunities. We are really seeing the advantages of this compound in ways that I believe will continue to benefit our unitholders.
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Publication date: November 8, 2019