Net property income rises 30.1% to S$166.3 million in the half year

 

[SINGAPORE] ESR Real Estate Investment Trust (ESR-Reit) may have turned the corner in the first half ended Jun 30, with distribution per unit (DPU) rising 0.2 per cent to S$0.11239, from S$0.1122 in the corresponding year-ago period. 

 

Speaking at the Reit&rsquo s results briefing on Tuesday (Jul 29), Adrian Chui, chief executive officer and executive director of the manager, said that while the 0.2 per cent increase may seem &ldquo boring&rdquo and &ldquo low&rdquo , this was a &ldquo huge turnaround&rdquo from H1 2024, which recorded an 18.6 per cent decline in DPU. 

 

Core DPU, which excludes other gains, also rose 8.1 per cent year on year to S$0.10765 in the half-year. It accounted for around 96 per cent of total DPU, said the Reit manager. 

 

This means that these contributions were from the Reit&rsquo s underlying operations, not income support or capital gains, Chui said. &ldquo In fact, this first-half is the last batch of capital gains that we will pay out.&rdquo  

 

The distribution will be paid out on Sep 12, after the record date of Aug 6. 

 

The growth in DPU came as revenue for the half-year increased 23.2 per cent to S$222.9 million, from S$180.9 million in H1 FY2024. This was partly due to positive rental reversions from lease renewals, which was up 9.7 per cent. 

 

It also had additional income contributions from two acquisitions made last November, and two projects in Singapore that completed asset enhancement initiatives (AEIs). These were, however, partially offset by the loss of income from several divestments in FY2024 and March 2025. 

 

Net property income consequently rose 30.1 per cent to S$166.3 million, from S$127.8 million in H1 FY2024.

 

Distributable income was up 4.5 per cent to S$90.1 million in the half year for similar reasons. It was partially offset by higher costs incurred from financing the two acquisitions and higher tax expenses, said the Reit manager. 

 

The stronger performance in H1 FY2025 indicates that the manager&rsquo s overall executive strategy was right, said Chui. Since 2022, the manager has focused on recapitalising the balance sheet, rejuvenating the asset portfolio, recycling capital and reinforcing the sponsor&rsquo s support. 

 

This includes divesting around half of its old portfolio, particularly those with shorter leases, said the chief executive. The Reit&rsquo s average land lease now stands at 43.5 years, up from 36 years previously. 

 

But that level of divestments &ndash with around S$550 million worth of assets sold in 2023 and 2024 &ndash is unlikely to be repeated this year, said Chui. &ldquo We are not as pressured (to) sell the assets because the land lease decay impact has come down a fair bit. We can be more patient with how we want to divest the assets&hellip and make sure (they) get the best price.&rdquo  

 

Unitholders had also suggested a slower pace of divestments to better understand what the Reit&rsquo s stable distributions really are, said Chui. 

 

As at Jun 30, 2025, ESR Reit&rsquo s weighted average lease expiry was down marginally to 4.1 years and occupancy at 91.2 per cent. 

 

Its net asset value (NAV) per unit fell to S$2.66, from S$2.75 on an adjusted basis at end-2024. But the manager said its diversified portfolio, with access to assets abroad and those with longer leases will enhance its resilience against NAV decay. 

 

Meanwhile, gearing ratio stood at 42.6 per cent, with the manager &ldquo actively working&rdquo to bring it under 40 per cent. 

 

Chui added that ESR Reit was well hedged with an 80 per cent fixed interest rate exposure for 2.2 years. This will provide flexibility to enter into new hedges when market conditions are favourable &ndash given that rates were as high as 3.5 per cent previously, and now at a much lower base, he said. 

 

Debt cost reduced to 3.47 per cent. The manager was also pursuing a trust credit rating to potentially improve debt credit margins and broaden access to capital. 

 

In the next half-year and 2026, Chui said that DPU growth will be mostly driven by organic asset performance, completing ongoing AEIs, and improving operational efficiency.

 

The manager will continue to divest smaller non-core assets, with proceeds used to reduce debt, and for unit buybacks, AEIs and sustainability efforts, said Chui. &ldquo Acquisitions will take a backseat for the timing being, at least for the next 12 months or so.&rdquo

 

Instead, much of the manager&rsquo s focus will shift towards strengthening the Reit&rsquo s core operations and sustaining its current DPU growth with better quality earnings, he said. 

 

A key risk is the uncertainty surrounding US President Donald Trump&rsquo s trade policies, especially with Singapore yet to receive its tariff letter, Chui said. 

 

Sector-specific tariffs, particularly for semi-conductor and pharmaceutical industries, will have a negative impact on Singapore&rsquo s export-reliant economy, he added.