ESR-Reit buying warehouse for $225m; proposes $150m equity fundraising

SINGAPORE - ESR-Reit will acquire a warehouse in Jurong for $225 million under a newly formed joint venture (JV), conduct asset enhancement works at two existing assets, as well as raise up to $150 million in an equity fundraising to finance these transactions and repay existing debt.

The manager of the mainboard-listed real estate investment trust (Reit) said in a bourse filing on Monday (June 17) morning that the warehouse acquisition will be made through PTC Logistics Hub LLP, a limited liability partnership in Singapore.

ESR-Reit holds 49 per cent of the partnership interests in the joint-venture LLP while third-party logistics firm Poh Tiong Choon Logistics (PTCL) holds the remaining 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, Singapore 609289.

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

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

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

The newly redeveloped six-storey ramp-up warehouse has rooftop parking and is located within the Pandan area at Jurong Industrial Estate. It has a gross floor area (GFA) of around 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, 2019.

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

The acquisition will also increase the Reit's portfolio weighted average lease expiry from 3.7 years to 3.9 years, and improve overall portfolio occupancy from 92 per cent to 92.6 per cent.

Separately, ESR-Reit also plans to conduct asset enhancement initiatives (AEIs) on two existing assets, its manager said in a separate filing on Monday.

These involve using untapped plot ratio to develop a modern high-specification eight-storey industrial building on the site of 7000 Ang Mo Kio Avenue 5, as well as rejuvenation works at UE BizHub East in Changi Business Park.

Both development works will cost a total of $45.7 million and are expected to provide an estimated yield on cost of up to 9 per cent.

Construction will start in the fourth quarter of 2019 for both properties, and will take 18 to 24 months to complete for the Ang Mo Kio site and 12 months for UE BizHub East.

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 about 270,000 sq ft of industrial space, with a remaining 225,000 sq ft for further development in the future. 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, with the remaining stake owned by Ho Lee Properties.

As for UE BizHub East, the AEI is meant to attract and retain quality tenants, the manager said. The drop-off area will be redesigned to improve traffic flow into the property, while access to the office lobbies will be reconfigured to ease navigation and improve accessibility. The façade and internal food street will also receive a facelift.

The property is expected to remain fully operational during the AEI works.

To fully finance the Jurong warehouse acquisition and the AEI works, as well as to repay existing debt, ESR-Reit proposed an equity fundraising on Monday.

New units in ESR-Reit will be offered via a private placement to raise gross proceeds of up to $100 million as well as a preferential offering to existing unitholders to raise not more than $75 million.

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

Of this $150 million, some $56.8 million will be used to repay the Reit's existing debt. The remainder will fully fund the acquisition and AEI works.

About $3.1 million will go into paying transaction-related expenses, including the underwriting and selling commission and expenses for the fundraising.

Under the private placement, about 195 million new units will be placed to institutional and other investors at an issue price of between 51.5 Singapore cents and 52.5 cents apiece. This will raise about $75 million in gross proceeds, with an upsize option to increase it to $100 million.

The issue price range for the placement represents a discount of 6.5-8.3 per cent to the volume-weighted average price of 56.15 cents per unit of all trades on June 14.

The joint global coordinators and bookrunners for the private 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, which will not be underwritten.

ESR-Reit requested a trading halt at 7.55am on Monday before it filed these announcements.

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