ESR has said it is ready for more M&A and other investment opportunities emerging from the market dislocation created by the covid-19 pandemic.
Jeffrey Perlman, the chairman of the Hong Kong Stock Exchange-listed logistics real estate platform, said there are going to be “really attractive opportunities” either through M&A or other types of acquisitions caused by coronavirus-related disruption. He said the firm is looking to “be active in this environment as many of its peers do not have the same access to the amount of capital that ESR has.”
“We do expect many of our industry peers to be stretched from a liquidity perspective,” Perlman explained at its fiscal-year 2019 earnings call on 23 March. “We think capital is king in this environment and will give us a great ability to seek out attractive investment and development opportunities.”
According to its latest earnings report, ESR is sitting on a balance sheet of $884.2 million of cash and a net debt to total assets ratio of 26.6 percent as of 31 December 2019. Moreover, the firm managed to reduce its cost of borrowings by more than 150 basis points after its initial public offering last year.
M&A activities have played a key role in driving the growth of the Asia-Pacific-focused logistics player, according to the report. In March 2019, ESR completed the privatization of Australia-listed real estate investment firm Propertylink for $522.51 million. It also made inroads into the Singapore industrial REIT market with investments in Sabana REIT and AIMS APAC REIT. The firm grew its AUM in 2019 by 38 percent year-on-year to $22.1 billion.
Although Perlman said ESR would leverage its “robust balance sheet and liquidity” to take advantage of the market dislocation triggered by covid-19, he added that it would remain prudent in this environment to maintain a strong and healthy balance sheet. “There is no certainty as to how long this virus can continue to last,” he said. If the pandemic were to persist for a longer period, Perlman said he expected that some of the firm’s tenants and capital partners might need to “take a pause and reassess their portfolios.”
Having said that, the firm is confident about the resiliency of logistics real estate in Asia-Pacific and has seen minimal disruption to its projects as a result of covid-19. Currently, only two of its 43 construction projects – both of which are in Wuhan – are paused due to the pandemic. But the firm is ready to resume construction on the projects in the next one or two months, according to its co-founder and co-chief executive officer Jeffrey Shen.
Meanwhile, only two of ESR’s 157 existing developments have temporarily closed. The remainder are unaffected and remain open.