ESR, PGIM Investing $100M in Singapore Sale-and-Leaseback Logistics Deal

Logistics giant ESR has joined forces with US fund manager PGIM Real Estate to invest $100 million in developing a build-to-suit warehouse in western Singapore under a sale-and-leaseback agreement with a Japanese beverage maker.

Hong Kong-listed ESR has teamed up with PGIM’s Asia core strategy to acquire the leasehold rights for the property from Pokka Sapporo Food & Beverage, with the partners set to develop a sustainable five-storey warehouse on the site, incorporating a rooftop solar facility, to replace the ready-to-drink coffee and tea producer’s current one-storey building.

“This is an exciting opportunity for ESR as we leverage our unrivalled development expertise to support Pokka’s business needs by creating space that’s designed to achieve energy efficiency and increase productivity,” said Jeffrey Shen and Stuart Gibson, co-founders and co-CEOs of ESR.

The project is ESR’s first partnership with PGIM Real Estate in Singapore, where Shen and Gibson see “excellent market fundamentals and ongoing strong demand for quality assets”.

Leaning Into Leasebacks

As part of the transaction, Pokka has committed to a 10-year lease of at least 70 percent of the future building’s 64,490 square metres (694,165 square feet) of space, with an option for further extensions, ESR and PGIM said Friday in a release.

Advisors from CBRE, which brokered the transaction on behalf of Pokka, see the deal as evidence of the benefits to fund managers like ESR and PGIM of teaming up with existing industrial operators for redevelopment projects.

“Investors like sale-and-leaseback redevelopment deals, as it allows ultimate ownership of brand-new, efficiently designed industrial facilities that are typically backed by long-term leaseback commitments,” said Rimon Ambarchi, head of industrial and logistics for CBRE Singapore and Southeast Asia. “The high quality of assets that you can achieve via a sale-and-leaseback development opportunity are not often available in the secondary market.”

Construction of the facility at 4 Benoi Crescent will commence this month and is scheduled for completion in the first quarter of 2024, the partners said.

ESR already has two major projects in Singapore involving a sale-and-leaseback component, including a 151,810 square metre integrated manufacturing and warehouse facility in the Tuas South area, which it took on in 2019, and a 46,000 square metre logistics facility at 2 Tanjong Penjuru Crescent, which it developed on behalf of CSC Holdings.

Both of these earlier build-to-suit efforts were undertaken by the company’s Logos division before it became part of ESR through its takeover of ARA Asset Management earlier this year.

Sustainability in Focus

The new Pokka project is designed to achieve Platinum certification under Singapore’s BCA Green Mark system for sustainable buildings, said Jai Mirpuri, head of new economy for ARA Private Funds under ESR.

The fully ramped facility will feature a suite of green features, including 2 megawatts of rooftop solar power that can be used by tenants and plugged into the power grid with net metering, enabling the facility to achieve carbon-negative status once it becomes operational.

CBRE’s Ambarchi pointed out that Singapore authorities, including JTC Corporation, which manages the city-state’s industrial masterplan, have been making green facilities a top priority.

“In Singapore, JTC Corporation is regulating and encouraging new developments to have more sustainable features, and it’s really pleasing to see that the industrial development and business community is very much on board with this direction,” Ambarchi said.

Nagoya-based Pokka is owned by brewing giant Sapporo and has operations in more than 50 countries across Asia, the Middle East and Europe. Pokka’s Singapore unit manages all global markets outside Japan.

“We are excited and look forward to the new facility and office space at 4 Benoi Crescent, which will provide us with the expanded scale, modern specifications and sustainability features to support our growth and expansion into the future,” said Pokka group CEO Rex Macaskill.

Support for Sheds

Benett Theseira, PGIM Real Estate’s head of Asia Pacific, said the affiliate of US financial giant Prudential remains positive on Singapore’s logistics sector because of its strong fundamentals and stable returns.

“This is a rare opportunity for PGIM Real Estate to acquire a stake in a prime asset anchored by a high-quality tenant,” Theseira said. “Our partner ESR brings an extensive track record in managing logistics developments and properties and, through our collaboration, we are excited that this acquisition and redevelopment project will further extend our regional footprint within the logistics sector.”

PGIM completed $721 million worth of acquisitions in Asia Pacific’s red-hot logistics sector last year, part of the firm’s $3 billion in real estate deals in APAC.

The fund manager’s Asian core strategy gained exposure to logistics assets spanning 286,704 square metres across Seoul, Sydney and Melbourne in 2021, while 230,000 square metres of assets were acquired in China and Seoul for the firm’s core-plus and value-add strategies.

Last month, PGIM announced a South Korean value-add warehouse investment vehicle with Singapore’s CapitaLand Investment, the joint venture having already acquired the Hansol Cold Storage Centre in Gwangju city for KRW 90.2 billion ($74 million) to seed the strategy.