It is part of the trust&rsquo s S$750 million multicurrency debt issuance programme

 

ESR-Logos Real Estate Investment Trust (Reit) priced S$100 million perpetual capital securities at 6 per cent, said its manager on Tuesday (Aug 13).

 

This is in addition to S$74.8 million in perpetual securities that the trust earlier this month offered to issue in exchange for an outstanding S$150 million in Series 006 perps. The exchange consideration comprised a principal amount of S$250,000 in new securities, accrued distribution and an amount in cash at 1 per cent of existing securities.

 

Both the S$74.8 million and S$100 million perps will be issued as part of the trust&rsquo s S$750 million multicurrency debt issuance programme.

 

OCBC has been appointed as the sole lead manager for the issue.

 

Holders will receive distributions in arrears and may redeem the perps on the first reset date on Aug 20, 2029, or any distribution payment date falling every five years after the first reset date.

 

If the perps are not redeemed on the first reset date, the distribution rate will be reset on that date and every five years thereafter. This will be at a per-annum fixed rate equal to the aggregate of the prevailing five-year Singapore Overnight Rate Average Overnight Indexed Swap &ndash and the initial spread of 3.548 per cent.

 

Part of the net proceeds from the issue will be used to finance the acquisition of two facilities in Japan and Singapore.

 

In July, the manager announced its plan to purchase 100 per cent of ESR Yatomi Kisosaki Distribution Centre in Nagoya, and 51 per cent of 20 Tuas South Avenue 14. They will be acquired for about 38.7 billion yen (S$340.1 million) and S$444.6 million, respectively.

 

The manager had planned to fund the acquisition by debt financing, the issuance of new units to existing unitholders to raise up to S$194 million, and consideration units of up to S$60.3 million.

 

However, it highlighted that with the S$100 million perps raised, the preferential offering size would be reduced to S$94 million.

 

Assuming that the acquisitions were completed on Jan 1, 2023, and funded by the net proceeds from its equity fundraising and perps, the Reit&rsquo s FY2023 pro-forma distribution per unit will rise 3 per cent to S$0.02641 from S$0.02564.

 

Meanwhile, its pro-forma aggregate leverage will rise to 41 per cent, from 35.7 per cent as at Dec 31, 2023, assuming the acquisitions had been completed in end-December.

 

ESR-LOGOS REIT (E-LOG) announced the proposed acquisition of 100% of ESR Yatomi Kisosaki Distribution Centre, Nagoya, Japan, for JPY38 billion ($338 million) and 51% of 20 Tuas South Avenue 14 (20TSA). The agreed value for (100%) of 20TSA based on a net property income yield of 6.1% is $840 million.

 

Both properties are being acquired at a 2.3% discount to the valuation. For ESR Kisosaki, the acquisition price is also 5.9% below the valuation of comparable properties in Nagoya. The total acquisition cost is approximately $772.6 million and the acquisitions are expected to be +1.8% DPU accretive. 

 

ESR Kisosaki comprises a land area of 79,096 sq m, with a weighted average lease expiry (WALE) of 2.71 years as of June 30. The property was completed on April 28, 2022 and has one of the highest sustainability ratings in Japan. Its committed occupancy is 89.4%. 

 

&ldquo We are in advanced negotiations with a tenant to take up space and we hope the occupancy will go up to 93%. The NPI yield is 4%, and we are acquiring the property at a 2.3% discount on the valuation,&rdquo says Adrian Chui, CEO of E-LOG&rsquo s manager.  

 

ESR Kisosaki will be E-LOG&rsquo s second property in Japan. In 2023, E-LOG acquired the ESR Sakura Distribution Centre in Chiba, Greater Tokyo, for $183.5 million, including rental support. Acquiring ESR Kisosaki DC will boost E-LOG&rsquo s logistics assets in Japan from 3.7% to 8.9% and provide E-LOG with exposure to the Nagoya logistics market. This move will enhance E-LOG&rsquo s geographical diversification, strengthen its network within Japan and increase its scalability in the Japanese logistics sector.

 

The Japanese property is located in northeastern Mie Prefecture, in the Bay Area of Greater Nagoya. It offers good road connectivity to the Nagoya Container Terminal (Port of Nagoya) and the Ise-Wangan Expressway. Greater Nagoya, situated in central Japan, is a key hub connecting Greater Tokyo and Greater Osaka, making it crucial for the movement of people and goods. According to an E-LOG press release, the property&rsquo s strategic location enhances Greater Nagoya&rsquo s transportation and logistics capabilities and provides excellent access to both domestic and international markets.

 

Rent stability

 

The Tuas property stands out in Singapore due to its 44-year lease tenure. It also boasts a committed occupancy rate of 99.7% and is near Tuas Megaport. The high-specification space, which accounts for 60% of the net lettable area, is 100% leased to REC Solar as an anchor tenant on a long-term lease of approximately 19 years with an option to renew for a further 20-year lease. This provides long-term rent stability and sustained organic growth through annual contracted rent escalations averaging 1.15% annually. 

 

The multi-tenanted ramp-up logistics warehouses comprise 40% of 20TSA and are leased to prominent companies like Schneider Electric Asia, Maersk Logistics and Services Singapore and DSV Solutions. With current rents below market rates, there is potential for rental growth.

 

Chui also defends E-LOG&rsquo s move to expand internationally. &ldquo Singapore will be 75% of our portfolio after the acquisition. For Singapore industrial property, there is a challenge in terms of the underlying land leases of 30 years. You will not see us suddenly become less than 50% in Singapore.&rdquo  

 

He acknowledges that Singapore is seen as a safe haven due to its rule of law, transparent regulations, stable currency and reliable government. &ldquo While we plan to acquire overseas assets, if there is a good opportunity here from the sponsor with a long land lease, we will consider that.&rdquo  

 

The 1.8% DPU accretion is based on the funding structure for the acquisition. For Japan, E-LOG has arranged and confirmed the financing and the equity fundraising for the properties. 

 

Since E-LOG&rsquo s portfolio is largely unsecured, E-LOG will fund 100% of ESR Kisosaki with yen debt. &ldquo We can get onshore debt for 60% of the property value,&rdquo Chui says, with the remaining 40% of yen debt obtained offshore. Offshore, we can still get a loan based on our unsecured portfolio. So, in effect, we are using 100% Japanese yen borrowing on the asset, which is similar to Sakura,&rdquo Chui says.

 

This form of capital hedge worked for ESR Sakura. Even though the yen has depreciated, the asset&rsquo s capital value has not changed. &ldquo Not only is yen debt cheaper, but the sector allows us to hedge capital. There is no risk of NAV declining,&rdquo Chui adds. 

 

However, loan-to-value in Australia is capped at 50%, exposing the capital values to risk. On the other hand, fluctuations between the Australian dollar and the Singapore dollar are less volatile. E-LOG has four-year loans for both ESR Kisosaki and ESR Sakura. Distributions coming back to Singapore will be hedged on a 12-month basis. 

 

Equity fundraising

 

E-LOG has announced an equity fundraising (EFR) comprising a fully underwritten preferential offer to unitholders to raise $194 million. ESR Group has committed to subscribe for $140 million of E-LOG units priced at 30.5 cents, which is the REIT&rsquo s NAV. 

 

Ivanhoé Cambridge, a unit of   Caisse de dé pô t et placement du Qué bec (CDPQ), which manages the Qué bec Pension Plan, is an investor in the private equity fund that owns 20TSA. Ivanhoé Cambridge has committed to subscribing to $54 million units worth at 30.5 cents apiece. 

 

Chui says the 30.5 cents pricing is higher than the market price at the end of July. &ldquo If we used the market price, it would be NAV and DPU dilutive and doesn&rsquo t help our ability to transform ourselves. Our share price is undervalued. Our sponsor is paying 30.5 cents to demonstrate a clear alignment of interest as they believe our share price is undervalued.&rdquo  

 

Since ESR Group manages the funds that own ESR Kisosaki and 20TSA, the transaction is an interested party transaction that requires an EGM in which ESR can&rsquo t vote. Ivanhoé Cambridge owns 3% of E-LOG and can&rsquo t vote for the 20TSA acquisition. 

 

&ldquo The EGM is in mid-October and if approved, we will launch the preferential offer. There is a long time to decide,&rdquo Chui adds. The fund that owns 20TSA has five investors, including ESR. Although the transaction is likely to raise E-LOG&rsquo s aggregate leverage to 41%, it will likely keep its average cost of debt at 4.03%. In 1HFY2024, for the six months to the end of June, E-LOG&rsquo s average cost of debt crept up to 4.03% from 3.91% as of the end of December 2023. 

 

When asked about divesting ESR BizPark @ Changi, Chui stated that no assets are off-limits and that he will evaluate all options. &ldquo We are not opening ourselves to brokers this is not an invitation.&rdquo However, Chui is open to divesting the asset if he receives an irresistible offer.

 

In the meantime, Chui has guided analysts that rental reversions for the portfolio are expected to be in the high single digits, closer to 10% than 8% for the year, following an 11.2% increase in 1H2024.

 

Despite the growing supply of logistics properties in 2025, supply chain disruptions will drive demand. Businesses will also need to consider interest rates. &ldquo If interest rates come down in 4Q2024, business costs will be lower. People will be more confident about business expansion once the cost of doing business comes down. I&rsquo m still cautious because we don&rsquo t know what will happen in the US elections,&rdquo he adds. 

Its NPI drops 9.2 per cent to S$127.8 million from S$140.8 million in H1 2023

 

ESR-LOGOS Real Estate Investment Trust (ESR-Logos Reit) posted an 18.6 per cent drop in distribution per unit (DPU) to S$0.01122 for the first half ended Jun 30, from S$0.01378 in the previous corresponding period.

 

It also announced acquisitions of two facilities in Japan and Singapore for S$772.6 million.

 

On Wednesday (Jul 31), the manager attributed the decline to the divestment of 11 non-core assets and lower distribution capital gains from the sale of investment properties in prior years.

 

The distribution will be paid out on Sep 17, after the record date of Aug 8.

 

ESR-Logos Reit&rsquo s net property income (NPI) fell 9.2 per cent to S$127.8 million from S$140.8 million in H1 2023.

 

Revenue for the half-year period declined 8.1 per cent to S$180.9 million from S$196.8 million.

 

The lower NPI and top-line growth came mainly from the loss of income from the sale of an Australian non-core asset in the second quarter of 2024 and properties amounting to S$440.6 million.

 

The decommissioning of 2 Fishery Port Road also contributed to the fall, said its manager. But it noted that the declines were partially offset by additional income contributions from two assets &ndash 7002 Ang Mo Kio Avenue 5 and 21B Senoko Loop &ndash which completed their asset enhancement initiatives in the third quarter of 2023 and the first quarter of 2024, respectively.

 

The amount available for distribution tumbled 15 per cent year on year to S$86.3 million, mainly due to lower NPI and distribution of capital gains. This was partially offset by lower borrowing costs, said the manager.

 

New acquisitions

Separately, the Reit manager said that it plans to acquire a 100 per cent interest in a logistics facility in Japan, as well as a 51 per cent interest in a high-spec manufacturing plant in Singapore.

 

The total purchase outlay is about S$772.6 million. The proposed acquisitions are expected to be 1.8 per cent accretive to its DPU on a pro-forma basis, assuming that the purchase was completed on Jan 1, 2023.

 

The two properties are ESR Yatomi Kisosaki Distribution Centre in Nagoya, and 20 Tuas South Avenue 14. They will be purchased for about 38.7 million yen (S$340.1 million) and S$444.6 million, respectively.

 

The freehold asset in Japan has a total land area of 79,096 sqm and a net lettable area of 134,863 sqm. It has a Wale of 2.7 years as at Jun 30. It will be acquired at a 2.3 per cent discount to valuation and 4 per cent NPI yield.

 

Meanwhile, the Singapore asset has a total land area of 252,733 sqm and a net lettable area of 247,063 sqm. It has a Wale of 11.2 years, as at end-June. It will be acquired at a 2.3 per cent discount to valuation and a NPI yield of 6.1 per cent.

 

Adrian Chui, chief executive and executive director of the manager, said at the briefing of the Reit&rsquo s financial results on Wednesday that these two acquisitions are &ldquo on-strategy&rdquo assets, meaning they are new, freehold assets which are in demand and have green sustainability features.

 

The acquisitions will be funded by debt financing, the issuance of new units to existing unitholders to raise up to S$194 million, and consideration units of up to S$60.3 million.

 

Pro forma gearing will stay low, at 41 per cent.

 

Chui said that the deal could improve the trust&rsquo s logistics and high-specs industrial portfolios, as well as extend underlying land leases to create a resilient and future-ready portfolio.

ESR-LOGOS REIT (E-LOG) J91U announced an amount available for distribution of $86.3 million in 1HFY2024, down 15.0% y-o-y, translating into distribution per unit (DPU) of 1.122 cents, down 18.6% y-o-y.

 

The decrease in DPU was mainly attributed to the divestment of 11 non-core assets completed in FY2023 and 2QFY2024 and lower distribution of capital gains from the sale of investment properties in prior years, as well as an enlarged unit base of 4.4% in applicable number of units from 7,363.9 million units to 7,685.4 million units due to the equity fund raising (EFR) conducted in 1HFY2023.

 

The proceeds from the divestments and EFR have yet to be redeployed, which contributed to the drop in DPU. This decrease in amount available for distribution to unitholders was partially offset by lower borrowing costs from the repayment of debts using the proceeds from the EFR and divestment of non-core assets.

 

Gross revenue in 1HFY2024 declined 8.1% y-o-y to $180.9 million, due to the divestment of 10 non-core assets of $440.6 million completed in FY2023 and 182-198 Maidstone Street located in Australia in 2QFY2024, which were part of E-LOG&rsquo s capital recycling strategy.

 

In addition, the decommissioning of 2 Fishery Port Road also contributed to the income loss. The above were partially offset by additional income contributions from 7002 Ang Mo Kio Avenue 5 and 21B Senoko Loop which completed their AEI in 3QFY2023 and 1QFY2024 respectively.

 

NPI in the first half fell by 9.2% y-o-y to $127.8 million. On a same-store basis, gross revenue and net property income (NPI) grew 1.6% and 0.5% y-o-y, respectively.

 

E-LOG delivered positive rental reversions of 11.2% in the first half, driven by logistics (+14.3%) and high-specs industrial (+13.8%). As at June 30, E-LOG&rsquo s portfolio occupancy remained stable at 91.4%, supported by strong demand for from new economy sectors.

 

During the first half, 99,884 sq m of space was leased, comprising 74,368 sq m of lease renewals (74.5% of total leases) and 25,516 sq m of new leases (25.5% of total leases). E-LOG&rsquo s weighted average lease expiry as at June 30 was 3.3 years, up from 3.1 years in the previous year. 

 

The AEI at 7002 Ang Mo Kio Avenue 5, which was completed in September 2023, has achieved approximately 87% occupancy. Rental collections remained healthy at approximately 98.7% of total receivables.

 

In 1HFY2024, the manager announced the attainment of TOP for the built-to-suit redevelopment at 21B Senoko Loop for NTS Singapore Pte Ltd (NTS), transforming the property from a general industrial property to a Green Mark Gold certified high-specifications property.

 

Under the redevelopment agreement, 21B Senoko Loop will be leased to NTS on a triple net basis for 15 years and will have built-in annual rental escalations. NTS will fully bear the payment of utilities, maintenance expenses, property tax and land rent.

 

As at June 30, aggregate leverage stood at 36.5%, providing significant debt headroom for its growth strategy. E-LOG has a commitment from a panel of lending banks to provide E-LOG with its first sustainability linked loan facility.

 

This new facility, which was completed in April, has been used to refinance all the credit facilities that are expiring in FY2024. As such, there are no refinancing risks posed for E-LOG for the remainder of FY2024.

 

Debt expiry remains well spread with a weighted average debt expiry of 2.1 years and an all-in cost of debt at 4.03% 75.0% of its interest rate exposure is fixed.

 

As at end-June, E-LOG had a debt headroom of $692.8 million and access to $229.8 million of committed undrawn revolving credit facilities. E-LOG remains well supported by 10 lending banks.

 

On July 31, E-LOG announced the proposed acquisition of a 100% interest in a freehold modern logistics asset, ESR Yatomi Kisosaki Distribution Centre, Japan as well as a 51% interest in a high-specification manufacturing facility, 20 Tuas South Avenue 14, Singapore, with remaining land lease of approximately 44 years, for a total acquisition outlay of approximately $772.6 million.

 

The two proposed acquisitions are expected to be +1.8% DPU accretive, and are acquired at a 2.3% discount each to their respective average valuation. The two proposed acquisitions are from E-LOG&rsquo s sponsor, ESR Group&rsquo s asset pipeline.

 

The acquisition aligns with E-LOG&rsquo s &ldquo 4R Strategy&rdquo , focused on (i) rejuvenating the asset portfolio, (ii) recycling of capital, (iii) recapitalising for growth and (iv) reinforcing the sponsor&rsquo s commitment.

 

The acquisition will improve E-LOG&rsquo s key portfolio by increasing E-LOG&rsquo s new economy assets and portfolio underlying land lease pivoting the portfolio will pivot towards future-ready green assets scaling up the Japan presence with sizeable freehold asset while tapping on ESR Japan&rsquo s on the ground expertise for economies of scale and acquiring a new Singapore property with committed occupancy of 99.7% and close proximity to Tuas Mega Port.