ESR-Logos REIT Selling Jurong East Warehouse to ST Logistics for $32M

It was a busy week for ESR-Logos REIT after its manager announced back-to-back deals, with the S$43.5 million ($32 million) sale of a warehouse in Jurong East to local logistics firm ST Logistics coming on the heels of sponsor ESR Group’s increased stake in the property trust.

ESR-Logos REIT’s manager told the Singapore Exchange on Friday that it would dispose of the five-storey ramp-up warehouse called Pandan Logistics Hub along the main Jalan Buroh road in Singapore’s western region. The SGX-listed trust is exiting what it refers to as a non-core asset at a 15 percent premium as part of its shift to modern and high-yield new economy assets.

“As we continue our portfolio rejuvenation efforts to focus on modern and in-demand New Economy assets, this non-core asset divestment will provide us with additional financial flexibility to pursue value opportunities with potentially higher total returns and deliver long-term sustainable value to our unitholders,” said Adrian Chui, chief executive and executive director of the trust’s manager.

News of the sale comes just two days after ESR Group increased its investment in the trust with the purchase of the 25 percent stake in ESR-Logos REIT’s manager previously held by mainland property tycoon Tong Jinquan.

Keeps Bigger Pandan Asset

ESR-Logos REIT will exit the 329,117 square foot (30,576 square metre) facility at 49 Pandan Road at a S$5.7 million premium to the asset’s valuation of S$37.8 million as of 30 June.

The purchase price translates to S$132.20 per square foot of the combined warehouse space and ancillary office, which also took into account the 17.2 years remaining on the land lease from its 30-year term. Pandan Logistics Hub serves as the headquarters of LQ Logistics, a local transport service provider to IT companies for their media distribution.

Situated at the junction of Pandan Road and major artery Jalan Buroh in the coastal western region of the city, the asset is just a few blocks away from the six-storey Poh Tiong Choon Logistics Hub at 48 Pandan Road in which the trust holds a 49 percent share.

The nearby warehouse was acquired in 2019 for S$225 million by the trust’s pre-merger identity, ESR REIT, through a joint venture with third-party logistics provider Poh Tiong Choon Logistics.

Net proceeds from the sale, which is expected to be completed in the fourth quarter subject to JTC Corporation’s approval, will be used for general capital requirements, to repay outstanding loans and to finance future renovation and redevelopment projects.

While ST Logistics did not respond to queries about its latest acquisition, JLL Singapore’s executive director of logistics and industrial leasing, Tan Boon Leong, said the company likely bought the property for its own use since end-user buyers are mandated to occupy at least 70 percent of a JTC property before getting approvals.

Tan, who is not involved in the deal, said the pricing was “reasonable” despite the 15 percent premium, considering the inflationary environment.

Mainland Investor Tong Jinquan Out

The sale announcement came just a couple of days after ESR completed its purchase of an additional 25 percent share in ESR-Logos REIT’s manager, taking over nearly all of the shares held by mainland property tycoon Tong.

The deal increases ESR’s ownership of ESR-LOGOS Funds Management to 91.3 percent. The fund management giant also raised its interest in the SGX-listed REIT to 14.4 percent after buying out Tong’s units in the trust.

“With this acquisition, we will continue to work to propel E-LOG towards an enhanced growth trajectory by accelerating its exposure to in-demand quality logistics and industrial properties while repositioning the portfolio quality by divesting non-core assets to continue to deliver long-term sustainable value to its unitholders,” said ESR chairman Jeffrey Perlman.

Tong also resigned on Friday from his non-executive director position on the board since he is longer a major shareholder, with only a 1 percent stake left in the trust manager through his firm Shanghai Summit. The remaining 7.7 percent interest in the manager is held by Japanese trading firm Mitsui & Co.

The 67-year-old investor chairs Shanghai-based builder Summit Group and was once ranked as the sixth-wealthiest man in China in 2015, according to the Forbes list. Tong, who was an elementary school dropout, has seen his wealth dwindle to around $1.3 billion this year from a high of $4.7 billion seven years ago.

Industrial Rent Up

The Pandan hub divestment, while it is unlikely to have a material impact on the REIT’s net asset value and distribution per unit for this financial year, will bring the overall portfolio down to 81 properties across Singapore and Australia valued at less than S$5.5 billion.

ESR-Logos REIT’s DPU inched up by 1.9 percent from the first quarter to end at S$0.737 in the second quarter, but first-half DPU fell 6 percent year-on-year to S$1.46.

Net property income rose 18 percent year-on-year to S$102.8 million in the first half, largely due to the additional contributions from ARA Logos Logistics Trust as a result of the S$1.4 billion merger in May.

The industrial-focused trust could benefit from the sector’s sustained rental growth in Singapore.

Data from JTC released last week showed that a key industrial rental index rose by 1.5 percent in the second quarter versus the preceding three months, as “robust occupier demand” drove rents higher for a seventh straight quarter, said Tay Huey Ying, research and consultancy head for Singapore at JLL.

Vacancy rate, which dipped to 9.1 percent last quarter, hit its lowest level since the 8.6 percent seen in the fourth quarter of 2015, according to Tay.

“While we expect occupier demand for industrial space to hold firm in the rest of 2022, the ongoing geopolitical tensions, elevated macroeconomic uncertainties and surging interest rates could temper business confidence and moderate rent growth in the short-term,” she said, projecting that this year’s rent could grow by 4 to 5 percent to reach a nine-year high.