Asset Acquisitions And Disposals :: Proposed Acquisition Of 8 Tuas South Lane

(Constituted in the Republic of Singapore pursuant to a trust deed dated 31 March 2006 (as amended))

1. INTRODUCTION

   ESR Funds Management (S) Limited, as manager of ESR-REIT (the "Manager"), is pleased to announce that RBC Investor Services Trust Singapore Limited, in its capacity as trustee of ESR-REIT (the "Trustee") has on 17 October 2017 entered into an Option Agreement ("Option Agreement") with Hyflux Membrane Manufacturing (S) Pte. Ltd. (the "Vendor" or "Hyflux") in connection with the proposed acquisition (the "Acquisition") of 8 Tuas South Lane Singapore 637302 (together with the mechanical and electrical equipment) (the "Property") for a purchase consideration of S$95.0 million (the "Consideration").

   Based on the relative figures calculated on the bases set out in Rule 1006 of the Listing Manual of Singapore Exchange Securities Trading Limited (the "Listing Manual"), the Acquisition is a discloseable transaction for the purposes of Chapter 10 of the Listing Manual.

   Mr Adrian Chui, CEO of the Manager, said, "This acquisition marks the inaugural transaction for ESR-REIT since ESR became the majority shareholder of its manager in January 2017. This transaction will not only reinforce our presence and boost our market share in the industrial real estate sector, but will also demonstrate our capability in recycling capital from our divestments into assets in order to unlock greater value."

   He further added, "Hyflux is a Singapore company with an international footprint and is a globally-recognised brand. We are pleased to have Hyflux join our tenant network. The asset's long leaseback term and strong tenant covenants will further support our objectives of maximising our portfolio returns and delivering strong and stable long-term distributions to our unitholders."

2. DETAILS OF THE ACQUISITION

   The Property predominantly comprises of five detached factories, one block of 8-storey warehouse and four blocks of dormitory buildings. It is located near to Tuas Biomedical Park, off Tuas South Avenue and is accessible via the Pan Island Expressway, Kranji Expressway and Ayer Rajah Expressway.

   The Property is also in close proximity to Singapore's future global port and international maritime hub; the Tuas Megaport. The new megaport, which will be the world's largest container terminal, will be opened progressively from 2021.

   The Property has a Gross Floor Area ("GFA") of approximately 72,569 square metres and a remaining land tenure of approximately 20 years with an option to renew for a further term of 15 years. Subject to completion of the Acquisition (the "Completion"), the Vendor

   and Hydrochem (S) Pte Ltd (collectively "Hyflux") will collectively leaseback a majority of the space for 15 years.

3. CONDITION PRECEDENTS

   The option under the Option Agreement may only be exercised upon the satisfaction of,

   inter alia, the following condition precedents:

4. The Vendor obtaining the approval of JTC and any other relevant authorities to the Acquisition, if required and to the issuance of the agreement for lease or lease of the Property by JTC;

5. The confirmation from JTC that the Vendor has fulfilled the requisite fixed investment criteria and JTC has granted a further lease term of between 15 to 16 years in respect of the Property upon expiry of the initial lease term of 30 years; and

6. The Vendor obtaining (a) the written confirmation from Singapore Exchange Securities Trading Limited in respect of the waiver of the requirement to obtain the approval of the shareholders of Hyflux Ltd for the sale of the Property to the Trustee at the Consideration, or (b) (if the said written confirmation is not obtained) the approval of the shareholders of Hyflux Ltd for the sale of the Property to the Trustee at the Consideration.

7. INDEPENDENT VALUATION

   The appraised value of the Property, based on a valuation conducted by Edmund Tie & Company (SEA) Pte Ltd as at 10 October 2017 using the capitalisation approach and discounted cash flow analysis, was S$115.0 million inclusive of upfront land premium payable for the unexpired lease term of approximately 35.4 years. The valuation was commissioned by the Manager.

8. PURCHASE CONSIDERATION

   The Consideration for the Acquisition was negotiated on a willing-buyer and willing-seller basis, taking into consideration the independent valuation conducted in respect of the Property. In addition to the Consideration, the Trustee is required to pay an upfront land premium for the balance of the first 30-year JTC lease term upon assignment of the land lease to ESR-REIT.

9. ESTIMATED COST OF THE ACQUISITION

   The estimated total cost of the Acquisition ("Total Acquisition Cost") is approximately S$111.0 million, comprising:

10. Purchase Price of $106.4 million which include the Consideration of S$95.0 million and estimated upfront land premium payable to JTC for the balance of the first 30- year lease term of S$11.4 million;

11. Stamp duties of approximately S$3.2 million payable for the Property and upfront land premium; and

12. Other transaction costs1 of approximately S$1.4 million in aggregate.

13. RATIONALE FOR AND BENEFITS OF THE ACQUISITION
14. BROADEN TENANT BASE WITH QUALITY TENANT

    There is a strong tenant covenant from Hyflux who is headquartered and listed in Singapore with a market cap of c. S$400 million. Hyflux is a specialist in water treatment, focusing on the areas of water and energy, and a global leader in sustainable solutions ranking among the top desalination plant providers with offices and plants spanning Singapore, China, India, the African, Middle-East and South American continents.

15. INCREASE PORTFOLIO WEIGHTED AVERAGE LEASE EXPIRY PROFILE

    The long leaseback with Hyflux is expected to provide income stability and increase ESR- REIT's portfolio weighted lease expiry from 3.4 years2 to 4.2 years.

16. POTENTIAL TO TAP ON TO THE FUTURE TUAS MEGAPORT

The Property is located within an established industrial area and next to Singapore's future global port and international maritime hub - Tuas Megaport. This port is expected to be the largest container terminal globally housing Singapore's port-related activities with the Maritime Port Authority (MPA) beefing up the area with more warehouses and distribution centres to make the overall port operations more efficient and seamless. Logistics, warehouse operators and manufacturers located near the megaport are expected to benefit from faster turnaround time. The transformation of the Tuas area for port development is also expected to increase the attractiveness of the Property to enjoy upside potential.

17. METHOD OF FINANCING AND FINANCIAL EFFECTS
18. METHOD OF FINANCING

    The Manager currently intends to finance the Total Acquisition Cost through debt financing. However, the Manager may finance the Total Acquisition Cost via a combination of cash from divestment proceeds, equity, debt and/ or hybrid securities. The proportion and mode of financing will be determined closer to Completion.

    1 Includes acquisition fees, professional and other transaction fees and expenses incurred or to be incurred in connection with the Acquisition.

    2 As at 30 September 2017

19. FINANCIAL EFFECTS FOR ILLUSTRATIVE PURPOSES ONLY: The pro forma financial effects of the Acquisition on the distribution per unit ("DPU") and the net asset value ("NAV") per unit presented below are strictly for illustrative purposes only and do not reflect the actual financial performance or position of ESR-REIT after the completion of the Acquisition.

    The pro forma financial effects were prepared based on the unaudited financial statements of ESR-REIT for the full year period ended 31 December 2016, assuming the Manager fully funds the Total Acquisition Cost by debt financing, and assuming that the lease to Hyflux in respect of the Property commenced on 1 January 2016.
20. PRO FORMA DPU FOR ILLUSTRATIVE PURPOSES ONLY: The pro forma financial effects of the Acquisition on the annualised DPU for the full year period ended 31 December 2016, as if the Acquisition had been completed on 1 January 2016, and ESR-REIT held the Property throughout the period, are as follows:

    Before the Acquisition	After the Acquisition
    Distributable Income (S$'000)(1)	54,476	59,053
    No. of Units ('000)(2)	1,304,434	1,304,434
    DPU (cents)	4.173	4.527

    Notes:

21. Estimate based on the assumed revenue derived from the Property upon commencement of the lease to Hyflux, net of operating, financing and trust expenses.

22. Reflects the applicable number of units for the calculation of DPU for the full year period ended 31 December 2016.

23. PRO FORMA NAV PER UNIT FOR ILLUSTRATIVE PURPOSES ONLY: The pro forma financial effects of the Acquisition on the NAV per Unit as at 31 December 2016, as if the Acquisition had been completed on 1 January 2016, are as follows:

    Before the Acquisition	After the Acquisition
    NAV (S$'000)	827,029	827,029
    No. of Units ('000)(1)	1,304,434	1,304,434
    NAV Per Unit (cents)	63.4	63.4

    Notes:

24. Reflects the total issued units as at 31 December 2016.

25. RELATIVE FIGURES RELATING TO ESR-REIT'S ACQUISITION OF 8 TUAS SOUTH LANE ON THE BASES IN RULE 1006 OF THE LISTING MANUAL

Chapter 10 of the Listing Manual classifies transactions by ESR-REIT into (i) non- discloseable transactions, (ii) discloseable transactions, (iii) major transactions and (iv) very substantial acquisitions or reverse takeovers, depending on the size of the relative