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.

The 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.Note 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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