Japan has seen its first ever hostile REIT takeover, as undervalued trusts are increasingly being seen as an opportunity to gain access to scarce property assets.
Star Asia Group, via its Star Asia Investment Corporation REIT, successfully took control of the US$300 million Sakura Sogo REIT at the end of August. The Sakura REIT owns a US$570 million diversified portfolio mainly located in and around Tokyo.
Star Asia acquired a 3.6 percent stake in Sakura REIT and used this to call a unit holder meeting at which it proposed taking over management of the REIT in order to lower costs and improve performances. Sakura’s existing manager produced a counter ‘white knight’ bid, but this was rejected by unit holders.
In an interview earlier this year, Star Asia founder and managing partner Malcolm Maclean said: “There are far too many small J-REITs that are stuck in the box and not growing. We really need to have some consolidation to ensure the survival of the fittest.”
Continued liquidity and the increasing sophistication of Asia Pacific real estate markets is producing a trend towards more complex deals, with REIT transactions one of a number of options being considered by investors.
Many REIT managers have significantly grown in AUM over recent years and more activity is expected as the market grows in sophistication, says Tim Graham, Senior Director, International Capital, Asia Pacific at JLL.
“REITs have generally been trading strongly in Asia Pacific, where there is significant underlying demand for income producing assets, backed by strong management teams.”
Typically, smaller REITs with less than US$1 billion of assets under management underperform their larger peers and are also more expensive to run.
Singapore has a number of small industrial REITs, trading at yields above 7 percent, which analysts say are vulnerable to corporate action. Earlier this year, Asia logistics specialist ESR took control of Singapore-listed Sabana REIT, acquiring a 90 per cent stake in the REIT’s manager and is now the largest unit holder.
ESR’s own ESR-REIT last year merged it with Viva Industrial Trust to create a REIT with more than S$3 billion of assets under management. “Size is a competitive advantage for REITs,” Adrian Chu, chief executive of the manager of ESR-REIT, told the South China Morning Post in an August interview.
Nonetheless, REIT deals are tough to take down. Last year, PAG Asia failed in its US$671 million attempt to take over Hong Kong-listed Spring REIT, garnering support from only 41.5 per cent of unit holders. PAG said it wished to replace Spring REIT’s existing manager, conduct a strategic review, and that it opposed the REIT’s management’s plan to acquire a shopping mall in Huizhou, Guangdong province.
