ESR-LOGOS REIT to Buy Its First Japan Logistics Property

REIT Japan

Tim Phillips

September 2, 2022

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For Singapore REITs, management teams were busy acquiring new properties in 2021. That saw some big deals and REIT records being broken for overseas acquisitions.

While the pace of dealmaking has somewhat slowed in 2022 – in the face of rising interest rates – that doesn’t mean they’ve completely stopped.

One perfect example of this is ESR-LOGOS REIT (SGX: J91U). The logistics-focused REIT, which came about from a merger between ESR-REIT and ARA LOGOS Logistics Trust, this week announced its first acquisition of a Japanese property.

Also known as E-LOG, the REIT’s proposed acquisition is of ESR Sakura Distribution Centre in Japan at a cost of S$183.5 million.

The logistics property – which is freehold and relatively new having only been completed in 2015 – is located in Sakura City, Chiba Prefecture. That’s strategically placed between Narita International Airport and Chiba Port.

Adding to DPU growth

Unsurprisingly, for REIT investors, the big question is: will the deal boost distribution per unit (DPU)? Thankfully for shareholders, the answer is yes.

According to management’s projections, it sees a DPU boost of 2.9% post-acquisition if the deal is 100% debt-funded – with gearing rising to 42.0% from the current 39.8%.

However, if the deal is funded with a mix of debt (60%) and equity (40%) then the DPU accretion would be a more modest 0.5%, although post-deal gearing would be lower at 40.6%.

In addition to that, the fundraising and monetary environment in Japan currently favour foreign dealmakers.

As the chart below illustrates, the Japanese Yen is trading at a multi-decade low versus the Singapore dollar.

And with the Bank of Japan keeping its stance on negative interest rates, it’s the only major central bank in the world that’s not hiking rates.

That’s come together to provide an environment conducive for REIT acquisitions. Furthermore, the cap rate spread over the risk-free rate is at an unbelievably attractive level in Japan versus regional peers.

For REIT investors in Singapore, this acquisition shows that dealmaking in specific Asian markets can still be an appetising proposition.

ESR-LOGOS REIT Japan acquisition 2022

Source: ESR-LOGOS REIT proposed Japan acquisition, 29 August 2022

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer. In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.