The manager of ESR-Reit on Dec 15 said it has signed a deal to divest eight non-core Singapore assets for $338.1 million as part of its ongoing portfolio rejuvenation and capital recycling efforts.

The sale to affiliates of Brookfield Asset Management represents a 2 per cent premium to the independent valuation of the properties as at Nov 30, and is expected to lower distribution.

“By realising value from non-core assets, we continue to reduce the impact of land lease decay on our net asset value,” said Mr Adrian Chui, chief executive officer 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 Sept 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,” said Mr Chui.

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 Sept 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, the 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 Sept 30. Upon completion of the proposed divestment, this figure is projected to shrink to 11.8 per cent of the portfolio.

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 21.1903 cents to 20.323 cents.

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 $790.2 million to about $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 $2.754, while its pro forma aggregate leverage would have decreased from 42.8 per cent to about 39.2 per cent.

Units of ESR-Reit closed 1.1 per cent, or three cents, lower at $2.71 on Dec 15.