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Cambridge Industrial Trust’s Manager Sold to e-Shang Redwood Limited – What could be the background?

SGX listed Cambridge Industrial Trust (dividend yield 7.1%) shareholders do take note.

The majority shareholders of the manager, managing Cambridge Industrial Trust was finally able to sell their manager to e-Shang Redwood Limited (ESR).

nabInvest Capital Partners and CREIM Limited have agreed to sell 80% of their stake in the manager to ESR.

Who is ESR? A look up on the internet shows that this company is affiliated as a subsidiary with Warburg Pincus, a well known USA private equity firm with offices around Singapore.

Warburg Pincus in recent times, were part of the consortium that took ARA Asset Management, another asset management firm listed on SGX private and are interest in GLP, another industrial asset management firm listed on SGX.

It looks to me that they are snapping up various asset management firms.

The question is, to purchase these hard assets via so many asset management firms, they need seed capital, so where will the seed capital come from? Some good guesses are either USA restless money or China restless money. My guess is that it would be backed by some group in China, who wants to hedge their single country, political risks, providing the seed money to recycle into assets around the Asia region.

Sale of manager looks to be popular. Not too long ago the majority shareholder of the manager manaing IREIT GLobal (dividend yield 8.7%), which invest in predominately German based offices, was sold to Tikehau Asset Management (read here).

Their direction is yet to be known now.

It should be known that the majority owners of Cambridge manager have the intention to sell rather early last year.

If we think from the perspective of the owner of the manager, their reason for owning a trust like this could be:

  1. an easy platform for them to recycle assets their own at various subsidiary into a trust, so that assets can be better managed, but also to minimize taxes, extract cash to put into higher return project
  2. to earn fees from managing an expanding trust through base management fees and performance fees

The fees earn may look small to your eyes but for an owner such as Keppel T&T, the fees over time may offset the dividends they loss when the IPO Keppel DC, where they pare down their ownership.

If we look at this 2 reasons, you can see that perhaps Cambridge’s manager have outran its usefulness.

Cambridge is the first REIT I remember that is sponsor-less. While this is good in terms of conflict of interest, it also means they have to hunt doubly hard for quality assets to grow their portfolio to earn more fees. Perhaps their is why there are so much chattering about them trying to follow the other industrial REITs by being strategic in Australia in the future. Singapore market has almost ran its course, unless they can buy some new build development. Their Australian endeavors seems to hit a snag.

The managers have a problem extracting fees as well. Recall that Cambridge had to change its performance fee structure because, due to the way they compute the performance fee as a percentage of dividends per share over the highest dividend since 2009, the shareholders have to pay the managers a rather extreme amount of fees.  Shareholders then, was outraged. And the management had to change.

This selling, like what happen to IREIT, create much unknown, but my gut feel is that it allows some form of asset recycling to take place on Cambridge portfolio.

Cambridge industrial trust is small, Singapore based and have limited land lease. Their properties are expose these 2 years when industrial production in Singapore is challenging. Some finance rejig might be able to change the portfolio mix. The worry here is whether they will get some assets that look good on paper but are poor in value.

As shareholders, what do you guys think?

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