ESR-LOGOS REIT (SGX: J91U) in whole new world!

Lifetime Membership This is my first article on ESR-LOGOS REIT (SGX: J91U) after the merger between ESR REIT and ALOG. Shares of the combined entities started trading from 5 May 2022 but the unit price had been dropping like flies. Year-to-date, the counter collapsed by a whopping 26%. With no end in sight, the falling unit price of ESR-LOGOS REIT is indeed disturbing for unitholders.

Unitholders from both ESR REIT and ALOG camps had been very supportive of the merger, with 98.4% of the former and 94.8% of the latter voting in favour of the merger. On this basis, the bearish form of ESR-LOGOS REIT is unlikely due to sell-offs by disgruntled unitholders. Rather, the decline in unit price of ESR-LOGOS REIT should be attributed to the challenging market conditions and the issuance of new units to fund the acquisition of ALOG units.

ESR-LOGOS REITThe total consideration for the merger was approximately $1.4 billion based on the scheme consideration of $0.95 for each ALOG unit. 1.6765 new ESR-REIT units were issued for each ALOG units, issued at $0.51.

It is not difficult to understand why unitholders had voted overwhelmingly for the merger. Post-merger, ESR-LOGOS REIT will ascend to one of the top ten largest S-REIT by market capitalization. To put the icing on the cake, the merger will be DPU-accretive for both ESR-REIT unitholders and ALOG unitholders by 5.8% and 8.2% respectively. Further, the merger allows for scaling and pivoting of the businesses in high growth sector – New Economy (logistics / warehouse and high-specs industrial properties).

ESR-REIT merger with ARA LOGOS Logistics Trust

ESR REIT share price rallied with GIC

The new pivot will see the combined entities transforming from an industrial S-REIT to that of a warehouse and logistics S-REIT. Effectively, it means that ESR-LOGOS REIT is taking on fellow S-REIT, Mapletree Logistics Trust (SGX: M44U). This is because both S-REITs are competing in the same sector. At the moment, the market capitalization for Mapletree Logistics Trust is about $7.5 billion while ESR-LOGOS REIT’s is about $2.4 billion.

True to its words, ESR-LOGOS REIT had been divesting non-core assets for the past few months after the merger. At the same time, ESR-LOGOS REIT also kept its promise by announcing the acquisition of ESR Sakura Distribution Centre a 5-storey modern logistics asset located in Tokyo for $183.5 million. The deal is subjected to unitholders’ approval at the upcoming EGM. A Lifetime Member has requested for my insights on the acquisition.BullionStarNote that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. I am not vested in ESR-LOGOS REIT. In this article, I will share my thoughts on the acquisition of Sakura DC.

Review of Sakura DC purchase by ESR-LOGOS REIT

Given that Sakura DC will mark the first foray into Japan by ESR-LOGOS REIT, it is understandable that unitholders are scrutinizing the merits of this deal. As such, I would expect plenty of questions from unitholders at the EGM. In my opinion, I have no issues with ESR-LOGOS acquiring warehouse assets in Tokyo. It is true that the Tokyo region has a strong supply and demand for warehouse assets. In fact, Mapletree Logistics Trust has 19 logistics warehouses in Japan, with 4 of them in the Chiba Prefecture.

My main issue with Sakura DC is actually the [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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