Brookfield Buying Singapore Industrial Portfolio From ESR REIT for $262M

With the city-state’s benchmark interest rates having fallen by more than two-thirds this year, Singapore’s real estate markets are thawing from a multi-year freeze thanks to deals such as a purchase of eight industrial assets by Brookfield Asset Management announced early Monday. 

The North American fund manager has agreed to purchase the 2.4 million square foot (222,967 square metre) portfolio from ESR REIT for S$338 million ($262.3 million) in the fourth major Singapore property transaction announced this month and the latest in a series of industrial deals in the city-state this year.

“With Singapore’s strategic location, connectivity and infrastructure, we have high conviction that demand for prime logistics and industrial space will continue to grow in Singapore, supported by long-term government policies,” Brookfield managing partner and head of east Asia real estate Andrew Burych said in a statement. “This investment also underlines our continued commitment to growing our logistics and industrial presence across Asia-Pacific.”

The purchase from ESR REIT comes less than a half-year after Brookfield closed on its first Singapore deal, having acquired a pair of business parks and an industrial complex from Mapletree Industrial Trust for S$535.3 million in a deal first signed in May.

Reducing Leverage

The purchase from ESR REIT gives Brookfield a variety of properties spanning logistics, general industrial and high-spec industrial uses with the most valuable asset in the batch, a ramp-up warehouse at 46A Tanjong Penjuru, carrying a sale consideration of S$113.5 million. The only other logistics asset in the portfolio is 24 Jurong Port Road, a 75,904 square property which fetched S$68 million.

At the stated compensation, Brookfield is paying an average of S$141 per square foot for the set of properties, which represents a 2 percent premium to an independent valuation of the assets as of 30 November, according to a statement by the manager of ESR REIT. The transaction was brokered by CBRE’s industrial and logistics team, which declined to comment on the specifics of the deal.

With the portfolio having a weighted average remaining land lease period of 22.4 years. ESR REIT explained the deal as a way to improve the land tenure of the trust while lowering its pro forma leverage from 42.8 percent to 39.2 percent. The REIT manager noted that the lower gearing provides the trust with over S$1.1 billion in debt headroom, which positions ESR REIT for potential acquisitions. 

“Through enhancing our balance sheet strength, ESR-REIT is better positioned to pursue new, value-accretive New Economy opportunities through asset enhancement initiatives (“AEIs”), redevelopments and acquisitions,” ESR REIT chief executive Adrian Chui said. “The improvements in portfolio fundamentals, leverage and debt headroom underscore our commitment to delivering sustainable total returns to our Unitholders.”

The other six assets in the portfolio include general industrial properties 86 & 88 International Road, 120 Pioneer Road, 24 Jurong Port Road, 13 Jalan Terusan, 60 Tuas South Street 1 and 43

Tuas View Circuit. 21 & 23 Ubi Road 1 is the sole high spec industrial asset in the set. 

December Surge

The three-year benchmark Singapore Overnight Rate Average stood at 1.17 percent on Monday, down from 3.62 percent at the beginning of this year, with a year-long slide in lending costs having revived deal-making in Southeast Asia’s most institutional real estate market.

The first day of December kicked off a busy month with an announcement of a LaSalle Investment Management-backed acquisition of a commercial building in the Clarke Quay area for $121.8 million in cooperation with a local value-add specialist. 

Days later, a mainland China investor agreed to pay S$809 million to acquire the Clementi Mall from Cuscaden Peak Investments in the city-state’s latest retail deal.

In the middle of last week Hongkong Land said it had agreed to sell a one-third stake in the Marina Bay Financial Centre 3 office tower to Keppel REIT for S$1.45 billion, before announcing on Thursday that it will seed its first-ever private investment fund with stakes in a set of Singapore office buildings. 

Sheds in Style

The December burst in commercial deals follows a number of milestones for Singapore’s industrial market this year with Macquarie Asset Management having established UIB Holdings Ltd in Singapore in March this year to create a $3.5 billion pan-Asia industrial platform. 

The Australian financial giant set up UIB by acquiring the property and fund management business of SGX-listed Boustead Singapore and merging it with Macquarie portfolio company Unified Industrial. In September, UIB Holdings announced plans for a Singapore-listed REIT which would hold a set of 23 logistics, industrial and business park properties.

In May ESR began construction of a multi-storey logistics property in western Singapore’s Jurong area with backing from a Japanese consortium including Tokyo-based builders Tokyu Land and Hulic.

In October, Vita Partners, a life sciences and R&D real estate joint venture of fund manager Warburg Pincus and Australian builder Lendlease agreed to sell three Singapore industrial properties to CapitaLand Ascendas REIT for S$565.8 million.