The fast-growing e-commerce sector, which grew in strength during COVID-19, boosted the demand for last mile logistics space in recent years. This further incentivised the transformation of the industrial market under Industry 4.0, which is also part of Singapore’s plan for a future-ready economy.
To meet this high demand from e-commerce and third-party logistics (3PL) companies that have made Singapore the hub for their Southeast Asian Market, ESR-LOGOS REIT (E-LOG) has been transforming and modernising its general industrial buildings within the logistics space into high-specification buildings and redeveloping conventional warehouses into cold-store facilities.
Listed since 2006, ESR-LOGOS REIT (SGX Code: J91U) has gone from being a pureplay industrial SREIT to having a portfolio of 83 properties in business parks, high-specs industrial, logistics/warehouse, and general industrial sectors, located across the development markets of Singapore (62 assets), Australia (20 assets), and Japan (1 asset) since its merger with ARA LOGOS Logistics Trust in April 2022.
With the help of its sponsor, ESR Group, which is the largest real asset manager in APAC and the third largest listed REIT manager in the world, E-LOG plans to grow its portfolio of New Economy properties in high-demand locations.
If you are interested in the industrial REIT sector that caters to the new economy, here are 5 things to know about E-LOG’s business.
Having a “moat” or a competitive advantage is something many investors look for in companies they invest in. Can you share how E-LOG has a strong advantage?
E-LOG’s competitive advantage is its people. The professional managers who manage our assets and grow the REIT at the Manager level, to the Directors who sit on our Board, to the people who continue to believe in our vision and support us at the Sponsor level.
Through the steadfast commitment and passion of our people, E-LOG has grown from strength-to-strength over the past five years. Our portfolio has increased 73% from 48 assets in 20171 to 83 properties, reflecting a 227% increase in valuation from S$1.68 billion2 to S$5.5 billion as at 30 September 2022.
What is E-LOG’s strategy to mitigate the impact of high inflation and rising interest rates?
We believe the supply crunch is a key reason for the continued rise in inflation and costs. As the world – and China eventually – opens its borders fully, supply side issues will be expected to improve and reduce inflationary pressures. In addition, interest rates have been rising to help curb inflation.
To address rising operating costs, we have raised our service charges and have a pass-through arrangement with our tenants for their utility costs. We have also spread out the renewal of our contracts to ensure that any increases in operating expenses (e.g. cleaning, security contracts and insurance premiums) are smoothened out over time.
By investing in E-LOG, what are the key trends in the “New Economy” investors can ride on?
We believe that logistics remain the backbone of consumption, be it in traditional forms of physical stores or in ecommerce. E-LOG continues to actively manage our portfolio and pivot towards New Economy assets. Currently, 62.5% of the portfolio are New Economy assets with majority multi-tenanted building leases primed for positive rent reversions.
With COVID-19, US-China trade tensions and the continued zero-Covid policy of China have changed the way goods are produced, delivered and consumed. The cost of supply-chain disruption can be more costly than labour costs. Last mile logistics will become more important, and we are starting to see emerging demand from niche logistics subsectors such as cold chain logistics. Developing, managing, and operating cold stores require certain level of skill sets and hence there is a short supply of such facilities. We believe that E-LOG is in a good position to undertake redevelopments of our older conventional warehouse assets into cold-chain facilities.
Read Also: 5 Things To Know About Daiwa House Logistics Trust (SGX Code: DHLU), A Japan Based Logistics REIT
Sustainability is a growing priority for investors, how is E-LOG committed towards sustainability practices and creating value?
We have set committed achievable targets and have aligned the United Nations’ Sustainability Development Goals in which we contribute to, with the goals of our Sponsor.
Environmental – We have goals to reduce total energy and water consumption across our multi-tenanted buildings. We have 10 buildings with solar panels installed and are in the process of implementing more solar power generation systems at more properties. With the current solar panels, we can generate an estimated 15MW of power, which represents c.15% of the Group’s total consumption capacity. While not all our properties are able to achieve Green Mark certification due to the age and specifications of the property, our objective is to achieve Green Mark certifications for buildings that undergo Asset Enhancement Initiatives (AEIs) and/or redevelopment.
Social – We are a signatory to Tripartite Alliance for Fair and Progressive Employment Practices (TAFEP). We maintain high levels of employee satisfaction and our staff have at least 16 training hours per employee per year to upskill and advance their knowledge.
Governance – We value board and management diversity and are committed to zero lapses in corporate governance. We continue to ensure that procedures and business continuity plans are in place for preparedness and resilience.
What is E-LOG’s value proposition to its unitholders and potential investors? What do you think investors may have overlooked about it?
We have a proven track record of value creation across the various real estate practices, and our primary objective is to improve the overall quality of E-LOG’s portfolio and ensure that our properties remain relevant to our tenants and unitholders over the long-term. To this end, we will continue to focus on delivering on three initiatives.
First, we rejuvenate mature assets through AEIs to attract tenants. For example, we will look to enhance and reposition a general industrial property to a high-specs property or redevelop a conventional warehouse to a cold-store facility thereby attracting higher rent paying New Economy tenants which in turn provides rental and valuation uplift. We may also develop unutilised plot ratio which will allow us to future ready our properties and engage tenants in trending industries with long tailwinds.
Second, we seek to divest non-core assets which are typically small and/or have short land leases and the proceeds from the divestments can be used to pare down debt and/or be redeployed to the acquisitions of higher quality assets. A lower gearing positions us to capture new investment opportunities faster.
Third, we identify assets for acquisitions which will augment our portfolio. Our preference is to acquire assets in New Economy sectors, and/or overseas assets with freehold or assets with long lease terms to provide an uplift to E-LOG’s distribution per unit and net asset value. We can leverage on our Sponsor’s portfolio of New Economy assets, of which we have identified an initial US$2 billion of visible and executable asset pipeline in Asia Pacific. This is a key differentiator for E-LOG in an increasingly scarce environment for logistics assets. We are not short of quality assets to acquire from our Sponsor’s pipeline.
Footnotes:
1 As at 31 December 2017
2 As at 31 December 2017
Editor’s Note: Some answers for this article were extracted from the SGX 10 in 10 series published on 29 November 2022 and have been republished with permission. You can read more on ESR-LOGOS REIT on the SGX website.
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