ESR-Logos Reit divests Tuas asset at 35.2% premium to valuation

ESR-Logos Real Estate Investment Trust’s (ESR-Logos Reit) trustee has agreed to sell the Reit’s general industrial building at 2 Tuas South Avenue 2 for S$53 million.

This represents a 35.2 per cent premium above the asset’s valuation of S$39.2 million based on an independent valuation conducted by CBRE as at Aug 31, 2023, said the Reit manager on Monday (Oct 2).

The valuation was prepared with an emphasis on the income capitalisation method, discounted cash flow analysis, and direct comparison method.

The divestment is slated to be completed in Q4 2023, and is subject to JTC Corporation’s approval. The identity of the buyer was not revealed due to a confidentiality agreement.

Net proceeds will be used to repay outstanding borrowings, finance potential acquisitions, for asset enhancement initiatives and redevelopment, and for general working capital requirements.

Following the divestment, the Reit’s portfolio will comprise 75 properties across Singapore, Japan and Australia, excluding 48 Pandan Road, which is held through a joint venture.

ESR-Logos Reit’s manager does not expect the divestment to have a material impact on the Reit’s net asset value and distribution per unit for the financial year ending Dec 31, 2023.

DBS Group Research noted that the transaction will bring the Reit’s completed divestments this year up to some S$400 million, on track with their previously announced plans to divest up to S$450 million worth of assets.

The research house is positive on news of the deal, highlighting the divestment consideration at above valuation as a “welcome sign”, especially as interest rates remain high.

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It also observed that more industrial assets are being put on the market for sale.

“The divestment at a 35.2 per cent premium to valuation also proves that buyers (likely acquiring for own use) are still willing to pay for assets, and property valuations in Singapore are still holding firm,” said DBS’ analysts in a note on Monday.

Assuming that proceeds from the sale of 2 Tuas South Avenue 2 are utilised to repay outstanding loans, the research house reckons this would improve ESR-Logos Reit’s gearing to 33 per cent.

“With less than S$200 million that will be due for refinancing in FY2024, ESR-Logos Reit will only have (an estimated) 10 per cent of all its loans due for refinancing next year.”

Units of ESR-Logos Reit closed Friday S$0.005 or 1.8 per cent higher at S$0.28.