ESR REIT Launches S$270M SG Expansion, New Equity Sale Days After IPO Scrubbed

Four days after ESR Cayman backed away from an impending $1.4 billion IPO, the warehouse developer’s Singapore affiliate today unveiled a trio of initiatives aimed at expanding its presence in Southeast Asia’s wealthiest city.

In a set of early morning announcements to the Singapore stock exchange, ESR-REIT, announced a S$225 million ($164 million) agreement to acquire a stake in a warehouse in Singapore, S$45.7 million in improvements for a pair of its existing properties, and a program to raise S$150 million through a pair of new equity sales.

The expansion barrage came less than a month after Warburg Pincus-backed ESR REIT had agreed to pay S$62.2 million to acquire control of competing industrial platform Sabana REIT as the private equity firm continues to pursue a strategy of consolidating its position in Singapore’s fragmented industrial property sector.

JV Set Up to Acquire Jurong Distribution Centre

ESR REIT’s asset acquisition involves the REIT’s manager taking a 49 percent stake in a partnership with Singapore-based transport provider Poh Tiong Choon Logistics to acquire a newly redeveloped six-storey distribution facility at 48 Pandan Road in the Jurong industrial estate.

The partnership has agreed to a put and call option with Poh Tiong Choon Logistics to acquire the company’s leasehold interest in the 1,093,415 square foot (101,581 square metre) facility for S$225 million, according to an announcement.

The agreement calls for the local logistics provider to contribute S$40.2 million toward the acquisition, the trustee of ESR REIT to chip in another S$38.6 million and the partnership to cover the remainder of the cost through debt.

ESR REIT indicated that the total acquisition costs attributable to the trust would be S$44.4 million, with the agreement also calling for Poh Tiong Choon to lease the property for ten years at an agreed rent which would escalate annually.

Located on a 437,436 square foot site, 48 Pandan Road already serves as Poh Tiong Choon’s corporate headquarters and the property is ten minutes by road to Jurong Port, and within five minutes of the city’s West Coast Highway.

Enhancing Existing Portfolio

In a second bourse filing today, ESR-REIT Funds Management said that it will be spending S$45.7 million on asset enhancement initiatives at two of its existing industrial properties beginning from the end of this year.

The funds will be used to develop a modern high-specification industrial facility in the Ang Mo Kio industrial estate, near Ang Mo Kio and Hougang New Towns, and for refurbishment works at UE BizHub EAST, a mixed-use development in the Changi Business Park region.

“The asset enhancement initiatives will provide unitholders with sustainable income and net asset value growth over the long term,” said Adrian Chui, chief executive officer of the REIT manager, adding that the trust’s buildings needed to keep up with trends and technologies in order to be “future ready”.

Raising New Cash to Pay for Initiatives

In the third announcement to the exchange, the manager of the trust announced equity fund raising which could bring in up to S$150 million through a pair of offerings.

The first offering calls for the REIT’s manager to make available through a private placement up to approximately 195.0 million new units in the trust to institutional and other investors at an issue price of between S$0.515 and S$0.525 with the expectation of bringing in gross procees of at least S$75 million and up to S$100 million.

The second part of the proposed equity sale is a preferential offering of new units in the trust to existing unit holders at a discount of up to 10 percent to the current price on the day the preferential offering is announced. The units will be doled out to the existing unit holders on a pro rata basis to raise gross proceeds of not more than approximately S$75.0 million.

From the proceeds of the offerings, which will require regulatory approval, the manager expects to commit S$56.8 million to repaying existing debt, about S$3.1 million for transaction-related expenses, S$44.4 to its 48 Pandan Road investment, and S$45.7 million for the newly announced asset improvement program.

ESR Expands Singapore Presence

The announcement comes three weeks after ESR took control of Singapore’s Sabana REIT in a set of transactions totalling S$62.2M.

In a statement at the time, ESR said that it had entered into agreements through a subsidiary that brought its ownership of Sabana REIT to 21.4 percent of the trust’s issued units, making it Sabana REIT’s largest unitholder.

The second largest block of shares at that time was a 17.1 percent stake held by nominees represented by Citibank, with the next largest owner holding 8.21 percent of the issued units.

Two separate transactions at the same time resulted in ESR indirectly holding about 93.8 percent of the equity in the manager of Sabana REIT.

The warehouse platform merged its ESR-REIT with Singapore-listed Viva Industrial Trust eight months ago, a move which made the combined entity the fourth-largest industrial REIT on the Singapore exchange.