ESR-Reit acquires property in Ang Mo Kio
Anita Gabriel
Singapore
ESR-Reit (Real Estate Investment Trust) has acquired an 80 per cent interest in a special purpose vehicle that owns a leasehold interest in a property situated within the Serangoon North Industrial Estate in Singapore for S$240 million, marking its largest acquisition to date.
The property in 7000 Ang Mo Kio Avenue 5 comprises a six-storey multi-tenanted high specifications production block and a five-storey multi-tenanted ancillary office block connected by a covered linkway.
The acquisition was funded with internal cash resources, existing bank debt facilities and part of the proceeds from ESR-Reit's subordinated perpetual securities, said its manager ESR Funds Management (S) Ltd in an announcement.
The property has a gross floor area (GFA) of some 1.07 million sq ft and a net lettable area of about 834,783 sq ft. As at Dec 1, it has an occupancy rate of 91.9 per cent - higher than the JTC Corporation average occupancy rate across all industrial properties of 88.6 per cent.
Concurrently, the manager also proposed to undertake an equity fund-raising to issue up to 263 million new units in ESR-Reit to rebalance the Reit's capital structure. The structure and timing of this have yet to be determined and may comprise a private placement of new units to institutional and other investors and/or a non-renounceable preferential offering of new units to existing unit holders on a pro rata basis.
ESR Cayman Limited, the sponsor, will undertake to the manager to take on its full entitlement of new units and any unsubscribed units up to a total subscription of S$125 million in the event the exercise includes a preferential offering.
The property has an independent valuation of S$303 million (on a 100 per cent basis) as at end-October 2017. The remaining 20 per cent interest in 7000 AMK Pte Ltd is held by the vendor, Ho Lee Properties. Put and call options have also been granted for ESR-Reit to purchase the remaining interest.
The acquisition by the Reit follows a recent purchase of 8 Tuas South Lane from Hyflux Membrane Manufacturing for S$95 million, excluding upfront land premium and stamp duty, which was completed on Dec 13.
The two acquisitions will boost ESR-Reit's portfolio value by 31.4 per cent from S$1.33 billion to S$1.75 billion and is part of the Reit's on-going efforts to rejuvenate its portfolio by recycling capital released from divestments of lower yielding non-core assets.
In a recent report, DBS Group Research said it believed that ESR-Reit was back on a growth path after its recently-announced portfolio reconstitution exercise and an infusion of new capital through perpetual securities.
Post the issuance of S$150 million in perpetual securities and S$35 million in divestment proceeds, the manager has quickly redeployed the funds into Tuas South Lane which comes with a long master lease, raising income visibility.
"Planned acquisitions will drive earnings higher, complemented by a stable operational outlook as the industrial supply risk dissipates," said the house, which has a buy rating on the counter.
