According to an announcement to the Hong Kong Exchange, Redwood Investment Company (RIC), controlled by Charles Alexander Portes, a non-executive director of ESR Group and Stuart Gibson, the co-CEO of ESR, has entered into an investment agreement with Sequoia Investco, a company controlled by Starwood Capital Group.
Sequoia Investco and RIC have agreed an arrangement that an existing margin loan facility of Redwood Investor (Cayman) (RWI), a company controlled by Portes and Gibson and which is the controlling shareholder of RIC, will be fully repaid and all of RWI’s financing obligations under the existing margin loan facility will be fully extinguished.
In conjunction with such arrangement, RIC will transfer all of its shareholding in ESR to Sequoia Investco and, in consideration, RIC will have the right to receive certain interests in an entity affiliated with Sequoia Investco.
RIC held approximately 10.657% of ESR. Immediately after completion of the agreement, Sequoia Investco will hold approximately 10.657% of ESR. Portes remains a non-executive director of ESR, and Gibson remains as co-CEO.
In an update, JP Morgan says the ESR announcement combined with ESR confirming that Mr Jeffrey Shen's (co-founder and co-CEO) shares are unencumbered should remove concerns over any further margin call on ESR's co-founders' stakes which may have contributed to the share price correction over the past few days.
"ESR confirmed RIC's agreement with Starwood is a complete equitisation of RIC i.e. no further loans outstanding. Furthermore, management confirmed an earlier HK exchange disclosure that Mr Shen's shares have all been unpledged," JP Morgan says.
Additionally, according to JP Morgan, RIC will also have the right to receive certain interests in an entity affiliated with Sequoia Investco which ESR clarified is likely an incentive structure built into the arrangement between Starwood and RIC. ESR reiterated that Mr Gibson remains committed to ESR and it remains business as usual.
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ESR is APAC’s largest real asset manager with total AUM of US$156 billion. The AUM is largely focused on New Economy assets such as logistics, data centres, life-sciences and other hi-tech related assets. ESR has US$80 billion of fee-related assets under management.
Quite recently, on February 15, Starwood Capital Group announced that a controlled affiliate had made a strategic investment in Echelon Data Centres. Echelon was founded in 2016 and developes data centres in Ireland and the UK.
Echelon currently has 140MW of capacity that is either operational or in late-stage construction, including a fully pre-committed 91.4MW hyperscale campus in Dublin. Echelon also has has a landbank in excess of 500MW, of which 168MW is in advanced stages of agreement with occupiers and expected to commence construction in 1H2024.
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The transaction will see Starwood Capital commit approximately US$850 million through Starwood Opportunity Fund XII and Starwood Real Estate Income Trust, becoming a 50% shareholder in Echelon.
Over the past 5 years, Starwood Capital has committed approximately US$8 billion of capital across 1.5GW of capacity into data cenres in various stages of development. Starwood recently launched Starwood Digital Ventures to oversee its data centre investment strategy and activities globally.
According to a Starwood announcement, its "capitalisation is further primed for growth through a new EUR900 million debt facility provided by Morgan Stanley and United Overseas Bank U11 ".
