ESR Buys Out Mitsui Stake in ESR-Logos REIT as Trust Sells SG Property for $25M

ESR Group is acquiring a minority stake in the manager of ESR-Logos REIT from Japan’s Mitsui & Co as the Hong Kong-listed logistics giant takes virtually full control of the entity just four months after the enlarged trust was formed by the S$1.4 billion ($975 million) merger of ESR-REIT and ARA Logos Logistics Trust,

ESR agreed on Friday to take over the 7.7 percent interest held by Mitsui in ESR-Logos Funds Management for an undisclosed amount, with that acquisition coming just two months after ESR had purchased a quarter-stake in the manager from mainland property tycoon Tong Jinquan’s Shanghai Summit. Post deal, ESR’s holding in the manager will jump to 99 percent from just 66.3 percent at the time the REIT merger was approved in May.

“This transaction will further enable ESR-Logos REIT and the E-LOG manager to deliver on our strategy of creating long-term and sustainable value in an increasingly competitive market,” ESR chairman Jeffrey Perlman said in the statement. “To this end, we remain steadfast in our support of E-LOG’s transformation into the leading new economy S-REIT with its scale, extensive offerings, capability and resources.”

The announcement came just one day after the REIT manager had announced the sale of the former Panasonic building in the city’s Bukit Merah district for S$35.3 million ($24.6 million). That industrial disposal was the trust’s second post-merger as the manager continues to fine tune the enlarged fund.

ESR Buys Out Partners

“As the sponsor of E-LOG, we are delighted to have increased our stake in the E-LOG Manager twice in quick succession to reach 99 percent and we thank Mitsui for their support,” Perlman said.

Following this latest transaction, Shanghai Summit, remains the only other shareholder in the REIT manager, with a 1 percent stake. Mitsui had not commented on its disposal of the REIT manager stake by the time of publication.

“With this acquisition, the shareholders of the manager are now even more focused, dedicated and aligned, which will enable E-LOG to better leverage the ESR Group platform and pipeline in an increasingly scarce environment for high quality logistics and high-tech industrial assets,” said Adrian Chui, chief executive officer and executive director of the trust manager.

Selling Off Non-Core Assets

ESR-Logos REIT’s Thursday announcement revealed that the trust manager has signed a deal to divest 2 Jalan Kilang Barat, a 7,679 square metre (82,655 square foot) industrial building in the city’s southwest region.

Chui said the disposal of the nine-storey structure frees up capital to drive growth and is in line with the trust’s strategy to shift to modern assets.

“This provides us with greater financial flexibility to realise our growth aspirations, recalibrate E-LOG’s portfolio quality towards modern, in-demand and scalable assets, and optimise returns to our unitholders over the longer term,” Chui said.

The asset is being sold at a 21.7 percent premium to its S$29 million market valuation as of 29 September, with the property changing hands at the equivalent of about S$4,597 per square metre of gross floor area. ESR declined to identify the buyer of the property, which has 40 years remaining on its land tenure.

The nearly two-decade-old asset sits at the intersection of Jalan Kilang Barat and Jalan Bukit Merah, a main arterial road in the area.

2 Jalan Kilang Barat is currently occupied by multiple tenants including Pioneer Electronics AsiaCentre Pte – a subsidiary of Japanese consumer electronics maker Pioneer Corp which uses the facility as its regional headquarters.

Once the transaction is completed in the fourth quarter, ESR-Logos REIT said proceeds will be used to repay outstanding debt, fund renovations, finance redevelopment projects and serve as general working capital.

The divestment will leave the ESR-sponsored trust with 80 properties in Singapore and Australia valued just less than S$5.5 billion. JLL is understood to have brokered the deal, but had not replied to requests for comment at the time of publication.

The announcement came less than two months after ESR-Logos REIT’s recent disposal of the Pandan Logistics Hub along Jalan Buroh road in Singapore’s western region. The Jurong East asset, which is 20 minutes’ drive from the Bukit Merah property, was sold to local logistics firm ST Logistics for S$43.5 million at the end of July.

Japan Expansion

As ESR-Logos REIT trims its Singapore portfolio, the trust has turned to the Japanese logistics market for opportunities.

Late last month, ESR  announced that it is acquiring ESR Sakura Distribution Centre in Chiba prefecture, Greater Tokyo, from a fund under its management, with that asset then to be sold to ESR-Logos REIT for S$183.5 million. The five-storey logistics facility is occupied by four tenants including game machine maker Universal Entertainment and warehousing contractor Sanzen Logistics Solution.

The latest data from Singapore’s JTC, which regulates industrial development in the city, showed that the key industrial rental index in the Lion City rose by 1.5 percent in the second quarter compared to the preceding three months. Over the same interval vacancy dipped to 9.1 percent to hit its lowest level since the fourth quarter of 2015.