ESR-LOGOS REIT - Maiden Foray Into Japan
- ESR-LOGOS REIT has announced its maiden foray into Japan with the proposed acquisition of ESR Sakura Distribution Centre for S$183.5m, inclusive of rental support of S$2.4m, or at a 1.1- 1.3% discount to independent valuation. The property is currently 85.7% held by third-party investors while ESR Group owns the balance 14.3%. The five-storey freehold modern logistics asset is located in Sakura City, Chiba Prefecture, Japan, and is strategically situated between Narita International Airport and Chiba Port.
- The acquisition will enable ESR-LOGOS REIT (SGX:J91U) to diversify its footprint into one of the largest logistics markets in Asia Pacific, which enjoys strong supply and demand dynamics and low vacancy rates. Other positives of the deal include expanding the proportion of ESR-LOGOS REIT’s ‘new economy’ assets to 63.4% of portfolio value and lengthening the underlying land lease expiry of the portfolio to 40.8 years.
- As a show of support to ESR-LOGOS REIT, ESR, as the Sponsor Vendor, indicated it has agreed to backstop ESR-LOGOS REIT’s risk of having its deposit forfeited as well as provide 12 months of rental support for the vacant space in ESR Sakura DC to mitigate leasing risks.
- ESR-LOGOS REIT intends to fund the total transaction cost of S$187m. Based on NPI yield of 4.35% (including rental support), the transaction is expected to deliver proforma DPU accretion of 0.5% (based on 60%/40% debt/equity funding) or 2.9% (based on 100% debt funding). Gearing is expected to increase to 40.6%-42%, based on debt/equity funding or total debt funding structure. ESR-LOGOS REIT indicated that funding for this transaction had already been secured.
- More importantly, when completed, this purchase would likely enable ESR-LOGOS REIT to replace the income vacuum from divested assets while proceeds from the S$120m worth of properties sold year-to-date could also be recycled or used to pare down some of its debt.
- We leave our FY22-24F DPU estimates for ESR-LOGOS REIT unchanged, pending unitholders’ approval during the EGM and completion of the transaction.
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2022-08-29 2022-08-29
Previous report by CGS-CIMB:
2022-07-26 ESR-LOGOS REIT - Sized Up For Growth
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