ESR-Reit to buy warehouse, enhance 2 assets and raise funds

Singapore

ESR-REIT opened the new week by unveiling a slew of initiatives: It will acquire a warehouse for S$225 million under a newly formed joint venture (JV) and undertake asset enhancement initiatives (AEIs) at two of its existing assets; it will also raise up to S$150 million in an equity fundraising to finance these transactions and to service existing debt.

The mainboard-listed real estate investment trust's (Reit) manager said in a filing on Monday that the warehouse acquisition will be made through PTC Logistics Hub, a limited liability partnership (LLP) in Singapore. ESR-Reit holds 49 per cent of the partnership interests in the joint-venture, and third-party logistics firm Poh Tiong Choon Logistics (PTCL), the other 51 per cent.

The LLP has entered into a put-and-call-option agreement with PTCL to acquire the leasehold interest in the warehouse at 48 Pandan Road in Jurong.

To fund the S$225 million acquisition, the LLP will assume a debt of S$146.2 million; PTCL is to contribute S$40.2 million by transferring its existing interest in the property. ESR-Reit's trustee will contribute S$38.6 million in cash or a mixture of cash and units in ESR-Reit.

Total acquisition costs attributable to ESR-Reit will be S$44.4 million.

After the acquisition is completed, the property will be leased back to PTCL for 10 years with a fixed rental escalation per annum.

The six-storey ramp-up warehouse has rooftop parking. It has a gross floor area (GFA) of 1.1 million square feet (sq ft), and an existing lease term with a further term of 24 years and four months starting from July 1.

ESR-Reit's rental income from the logistics portfolio will go up from 19.7 per cent (as at April 24) to 22.3 per cent after the proposed acquisition.

The acquisition will also raise its portfolio weighted average lease expiry from 3.7 years to 3.9 years, and improve portfolio occupancy from 92 per cent to 92.6 per cent.

ESR-Reit's manager also announced separately its plans for enhancement works on two of its existing assets - one in Ang Mo Kio, and the other in Changi Business Park.

The Ang Ko Kio project entails using untapped plot ratio to develop a new high-specification eight-storey industrial building on the site of 7000 Ang Mo Kio Avenue 5; the project in Changi Business Park is a rejuvenation of UE BizHub East.

The AEIs will cost S$45.7 million and are expected to provide an estimated yield on cost of up to 9 per cent. Construction starts in the fourth quarter

The increase in plot ratio from 1.7 to 2.1 at the Ang Mo Kio site is expected to create a total development GFA of 270,000 sq ft of industrial space, with a remaining 225,000 sq ft for future development. ESR-Reit's manager said it is in "advanced negotiations" with prospective tenants for the new building.

ESR-Reit holds an 80 per cent interest in the Ang Mo Kio site. Ho Lee Properties owns the remaining stake.

Over at UE BizHub East, the drop-off area will be redesigned to improve traffic flow into the property, and access to the office lobbies will be reconfigured to ease navigation. The façade and internal food street will also be given a facelift.

The property will remain fully operational during the AEI works.

To fully finance the warehouse acquisition and the AEI works and to repay debt, ESR-Reit has proposed an equity fundraising.

New units in ESR-Reit will be offered via a private placement to raise gross proceeds of up to S$100 million, as well as a preferential offering to existing unitholders.

The manager does not plan to raise more than S$150 million in total gross proceeds from both the placement and the preferential offering.

Of this S$150 million, S$56.8 million will go towards repaying the Reit's existing debt; the remainder will fully fund the acquisition and AEI works. About S$3.1 million will be for paying transaction-related expenses.

Under the private placement, 195 million new units will be issued to institutional and other investors at between 51.5 and 52.5 Singapore cents apiece. This will raise S$75 million in gross proceeds, with an option to upsize it to S$100 million. The issue price range represents a discount of 6.5 to 8.3 per cent to the volume-weighted average price of 56.16 cents per unit of all trades on June 14.

The joint global coordinators and book runners for the placement are Citigroup Global Markets Singapore and RHB Securities Singapore.

For the preferential offering, the issue price has not been determined. A financial adviser will be appointed to manage the offering.

ESR-Reit asked for a trading halt on Monday before making these announcements.