ESR-Reit scoops up property in Ang Mo Kio Avenue 5

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 in the Serangoon North Industrial Estate.

The firm paid $240 million for the stake - its largest acquisition to date.

The remaining 20 per cent interest 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 property in Ang Mo Kio Avenue 5 comprises a six-storey multi-tenanted production block and a five-storey multi-tenanted ancillary office complex connected by a covered linkway.

The acquisition was funded with internal cash resources, bank debt facilities and part of the proceeds from ESR-Reit's subordinated perpetual securities, said its manager, ESR Funds Management (S).

The property has a gross floor area of about 1.07 million sq ft, a net lettable area of about 834,783 sq ft and an occupancy rate of 91.9 per cent - higher than the JTC Corporation's average occupancy rate across all industrial properties of 88.6 per cent.

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.

This may comprise a private placement of new units to institutional and other investors or a non-renounceable preferential offering of new units to existing unit holders on a pro rata basis.

The property had an independent valuation of $303 million as of Oct 31.

The deal follows its recent acquisition of 8 Tuas South Lane from Hyflux Membrane Manufacturing for $95 million that was completed on Wednesday.

The two acquisitions will boost ESR-Reit's portfolio value by 31.4 per cent, from $1.33 billion to $1.75 billion, and are part of its ongoing efforts to rejuvenate its asset base by recycling capital released from divestments of lower yielding non-core facilities.

DBS Group Research said recently that it believed ESR-Reit was back on a growth path after its recently announced portfolio reconstitution exercise and an infusion of new capital through perpetual securities.

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A version of this article appeared in the print edition of The Straits Times on December 15, 2017, with the headline ESR-Reit scoops up property in Ang Mo Kio Avenue 5. Subscribe