ESR-Logos REIT Selling Singapore Building for $39M in Ninth Divestment in 10 Months

ESR-Logos REIT said on Monday that it has agreed to sell an industrial building on the west coast of Singapore for S$53 million ($38.5 million) in its ninth sale of a building from its portfolio in the past 10 months.

The SGX-listed trust is selling 2 Tuas South Avenue 2, a 20,193 square metre (217,356 square foot) general industrial facility in the Tuas Industrial Estate, to an unnamed buyer for 35.2 percent above its S$39.2 million valuation, according to a statement to the bourse.

“The net proceeds from the Divestment will be deployed to repay outstanding borrowings, finance potential acquisitions, asset enhancement initiatives and redevelopments and/or fund general working capital requirements,” the trust’s manager said in the statement to SGX, while adding that, “The Divestment is not expected to have a material impact on E-LOG’s net asset value and distribution per unit for the financial year ending 31 December 2023.”

With interest rates rising, ESR-Logos REIT saw its net borrowing costs jump by 60 percent to S$40.2 million in the first half of 2023, according to its interim financial report, with distributions per unit of equity trimmed by 5.6 percent compared to the same period in 2022.

Rents on the Rise

At the announced compensation, the trust is selling the building, which is held through a 60-year master lease set to expire in 2059, for the equivalent of S$2,625 per square metre of net lettable area.

The proposed sale comes after average rents for prime multi-user factories in Singapore rose by 5.3 percent in the second quarter of this year to S$2.13 per square foot per month, according to Savills.

Overall, industrial rents in the Lion City have now been climbing for 11 straight quarters, the property consultancy said in a recent report, and are now at their highest level in eight years, although the rate of growth has shown signs of tapering.

Despite the encouraging recent track record, Colliers warned in August that with an average of 10.5 million square feet of new facilities expected to be launched annually through 2025, Singapore’s industrial market is likely to see slower rent growth.

Asset Sales Continue

In announcing its divestment of seven assets across Australia and Singapore in late June, ESR-Logos REIT’s manager had pointed to what it terms its “4R” strategy, of portfolio rejuvenation, capital recycling, recapitalising its balance sheet and reinforcing sponsor support.

Central to this strategy is a plan to divest what the unit of Hong Kong-listed ESR terms non-core assets in favour of investing in updated facilities via asset enhancements, redevelopment projects and acquisitions.

Through its assets disposals the REIT has now arranged to raise S$397.1 million in cash, alongside having brought in around S$300 million through a private placement of units in the trust during February of this year.

In announcing its interim results in July, the manager of ESR-Logos REIT said that the trust expected to reduce its gearing to 33.6 percent following completion of pending asset sales. Following this latest divestment, the trust’s portfolio will include 75 properties in Singapore, Japan and Australia, plus another joint venture asset stake, and investments in three property funds in Australia.

Note: an earlier version of this story double-counted some asset sales. The current version provides the correct number of assets sold as nine with the total raised from these asset sales at S$397.1 million. Mingtiandi regrets the error.