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ESR-LOGOS REIT moves into Japan with DPU-accretive acquisition of ESR Sakura distribution centre

Chloe Lim
Chloe Lim8/29/2022 07:35 PM GMT+08  • 3 min read
ESR-LOGOS REIT moves into Japan with DPU-accretive acquisition of ESR Sakura distribution centre
ESR Sakura distribution centre. Photo: E-LOG
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The manager of ESR-LOGOS REIT, on Aug 29, announced the proposed acquisition of 100% of the trust beneficiary interest in ESR Sakura distribution centre for a purchase consideration of approximately $183.5 million, inclusive of rental support.

The distribution centre is a five-storey modern logistics asset located in Sakura City, Chiba Prefecture, Tokyo. The transaction is expected to be accretive to the REIT’s distribution per unit (DPU) of up to 2.9%, with funding already secured.

“We are pleased to expand the REIT’s footprint into Japan, our second overseas market, with the acquisition of ESR Sakura DC, a freehold asset that will ride on the strong logistics growth trends in the Greater Tokyo area,” says Adrian Chui, chief executive officer and executive director of the REIT.

“This transaction will also be the first direct asset acquisition post the merger from our Sponsor’s pipeline of quality logistics assets, demonstrating the REIT’s ability to access and execute the Sponsor’s visible acquisition pipeline, and together with the sponsor support, it reiterates the Sponsor’s alignment of interest and commitment to grow E-LOG into a leading New Economy REIT.”

ESR Sakura DC has a total land area of 41,658 sqm, net lettable area of 81,507 sqm and a weighted average lease expiry (WALE) of 2.9 years as at June 30. ESR Sakura DC is freehold and was completed in 2015.

The total acquisition cost is estimated to be approximately $187.0 million, including estimated professional and other fees and expenses.

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The acquisition is expected to be DPU accretive to E-LOG unitholders on a pro forma basis assuming the acquisition was completed on Jan 1, 2021. DPU is expected to increase by 2.9% and 0.5%, based on an illustrative scenario A: 100% debt funded and illustrative scenario B: 60% debt and 40% equity funded, respectively.

The proposed acquisition provides E-LOG with its maiden entry into Japan’s attractive logistics market and further strengthens E-LOG’s portfolio metrics.

As at July 12, the REIT has received committed debt financing term sheets of up to JPY17,600 million ($181.5 million) from banks to fund the proposed acquisition.

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ESR Sakura DC will be acquired at an attractive net property income (NPI) yield of 4.35%, and at a purchase consideration of JPY208,372 per sqm, which is approximately 21.8% lower than the average market sales comparables.

ESR Sakura DC is also located within the northern part of Chiba Prefecture in Tokyo, strategically situated between the Narita International Airport and Chiba Port. Given its proximity to key air, sea, and land transport routes, ESR Sakura DC will be a prime beneficiary of the growth in the Chiba Prefecture.

Additionally, E-LOG’s portfolio land lease expiry will increase from 38.5 years to 40.8 years post-acquisition of ESR Sakura DC. E-LOG stands to gain more exposure to freehold assets which do not suffer from valuation decay because of a declining land lease.

This acquisition is in line with the execution of E-LOG’s portfolio reconstitution and acquisition strategy for quality, scalable and future-ready assets to create a leading New Economy REIT. Post-acquisition, E-LOG’s strategic focus in New Economy assets across APAC will be further strengthened, increasing New Economy exposure to 63.4%.

Units in ESR-LOGOS REIT closed at 41 cents on Aug 29.

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