ESR-Reit sells eight Singapore assets to Brookfield for S$338 million; sale would trim distribution
Divestment part of Reit’s strategy to offload non-core assets, particularly those suffering lease decay
[SINGAPORE] The manager of ESR-Reit on Monday (Dec 15) has signed a deal to divest eight non-core Singapore assets for S$338.1 million as part of its ongoing portfolio rejuvenation and capital recycling efforts.
The sale to unrelated third parties represents a 2 per cent premium to the independent valuation of the properties as at Nov 30, and is expected to lower distribution. The buyers are managed by affiliates of Brookfield Asset Management.
“By realising value from non-core assets, we continue to reduce the impact of land lease decay on our net asset value,” said Adrian Chui, CEO and executive director of the manager.
The properties at 46A Tanjong Penjuru, 86 and 88 International Road, 120 Pioneer Road, 21 and 23 Ubi Road 1, 24 Jurong Port Road, 13 Jalan Terusan, 60 Tuas South Street 1, and 43 Tuas View Circuit have a remaining weighted average leasehold of 22.4 years as at Sep 30, 2025.
“Through enhancing our balance sheet strength, ESR-Reit is better positioned to pursue new, value-accretive new economy opportunities though asset enhancement initiatives, redevelopments and acquisitions.”
Four of the properties to be divested have land leases of about 13 years or less, with the manager stating that the divestment will “meaningfully reduce ESR-Reit’s exposure to such assets with short land lease tenures.”
Had the divestments been completed by Sep 30, the Reit’s portfolio’s weighted average remaining land lease would have improved from 43.3 years to 44.8 years.
For the Singapore portfolio specifically, weighted average remaining land lease would have improved from 31 years to 31.8 years and the weighted average lease expiry would have increased from 4.1 years to 4.3 years.
ESR-Reit’s manager added that 13.2 per cent of the Reit’s portfolio comprises assets with remaining land leases of less than 15 years as at Sep 30. Upon completion of the proposed divestment, this figure projected to shrink to 11.8 per cent of the portfolio.
Brookfield’s managing partner and head of East Asia real estate, Andrew Burych said: “With Singapore’s strategic location, connectivity and infrastructure, we have high conviction that demand for prime logistics and industrial space will continue to grow in Singapore, supported by long-term government policies.”
Pro forma estimates
If the divestment had been completed on Jan 1, 2024, the Reit’s distribution per unit for the 2024 financial year would have dropped 4.1 per cent, from S$0.21190 to S$0.20323.
Assuming all net proceeds were used to repay existing debt, ESR-Reit’s pro forma aggregate leverage as at the end of 2024 would have fallen from 42.8 per cent to about 39.2 per cent.
This would improve ESR-Reit’s pro forma debt headroom from S$790.2 million to about S$1.1 billion, providing “substantial financial flexibility” to pursue yield accretive investment opportunities, said the manager.
In addition, ESR-Reit’s pro forma interest coverage ratio for the trailing 12 months as at Dec 31, 2024, would have improved from 2.5 times to 2.6 times, further strengthening the Reit’s capital structure.
The net asset value per unit would be unaffected at S$2.754, while its pro forma aggregate leverage would have decreased from 42.8 per cent to about 39.2 per cent.
Strong nine-month performance
In October, ESR-Reit posted a 6.8 per cent year-on-year rise in distributable income of S$134.6 million for the nine months ended Sep 30. The improvements were mainly due to a trust beneficiary interest acqusition and a November 2024 Singapore property stake purchase.
This prompted Maybank Securities to upgrade it from a “hold” to a “buy” with a 50 per cent higher target price of S$3 – on the back of the Reit’s mid-single digit organic net property income growth, contribution from strategic acquisitions and its relatively high yield.
In December, ESR Group, the Reit’s Singapore-headquartered sponsor, was also reportedly considering selling some of its assets in China to concentrate on other markets, potentially for a few billion US dollars.
Units of ESR-Reit rose 0.7 per cent to close S$0.02 up at S$2.74 on Friday.
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