Distributable income is 7% higher on the year at S$44.2 million

 

[SINGAPORE] The manager of ESR-Reit : J91U -2.38% on Tuesday (Apr 22) posted a 31.3 per cent rise in net property income (NPI) for the first quarter to S$82.5 million from S$62.9 million in the previous corresponding period. 

 

Its Q1 revenue climbed 24.2 per cent to S$110.5 million from S$89 million previously. 

 

The growth in NPI and revenue were attributed mainly to contributions from two properties the real estate investment trust (Reit) acquired in November 2024. The properties are ESR Yatomi Kisosaki Distribution Centre in Mie, Japan, in which ESR-Reit holds a 100 per cent trust beneficiary interest, and 20 Tuas South Avenue 14 in Singapore, in which it holds a 51 per cent stake.

 

Excluding the two acquisitions, the increases would have been more subdued and the Reit would have recorded a 5.3 per cent rise in NPI to S$66.3 million, and a 3.4 per cent rise in revenue to S$92 million. 

 

Other factors that boosted NPI included the higher NPI of existing properties as well as the completion of asset enhancement initiatives (AEIs) of two high-specification industrial facilities in Singapore. These are an industrial building located at 7002 Ang Mo Kio Avenue 5, which concluded its AEI in Q3 2023, and a property at 21B Senoko Loop, which finished its AEI in Q1 2024.

 

Q1 distributable income was up 7 per cent on the year at S$44.2 million from S$41.3 million in the year-ago period. 

 

The increase was due to the acquisition of the two properties in November, but partly offset by additional funding drawn to finance the acquisitions alongside lower capital gains distribution compared with Q1 FY2024. 

 

Net asset value per unit for the quarter was S$0.269, against S$0.311 for the year-ago period.

 

It registered a positive rental reversion of 8.6 per cent for the quarter, compared with 10.8 per cent in the same period last year. The manager said its occupancy rate was healthy at 91.6 per cent, largely unchanged from 91.7 per cent in Q1 FY2024. As at March 2025, its portfolio&rsquo s weighted average lease expiry stood at 4.1 years.

 

Its gearing stood at 41.9 per cent as at March 2025. Total debt was at S$2.2 billion, down from S$2.3 billion as at December 2024.

 

The manager said it has a well spread-out debt expiry profile, with no more than around 27 per cent of loans expiring each year. Moreover, its expiring 2025 loans have been refinanced ahead of time at lower margins, and there is potential for its 2026 loans to receive early refinancing without penalties.

ESR-Reit Management bought back 3.2 million units of ESR-Reit : J91U +2.04% on Mar 20 at an average price of S$0.25 per unit. This took the number of units acquired on the current buyback mandate to 39.2 million units, or 0.5 per cent of the outstanding issued units. 

 

The manager maintains that over the past two years, it has successfully executed its &ldquo 4R Strategy&rdquo , achieving key milestones for ESR-Reit. This has involved recapitalising through equity fundraising and recycling capital via the divestment of non-core assets. The manager added that these initiatives have enhanced the Reit&rsquo s asset and earnings quality, lengthening portfolio land leases and increasing the proportion of new economy assets. 

[SINGAPORE] ESR-Reit has priced S$125 million in subordinated perpetual securities at 5.75 per cent under its S$750 million multicurrency debt issuance programme.

 

The net proceeds arising from the issue of its securities will be used to refinance or repay existing borrowings or to finance or refinance ESR-Reit&rsquo s acquisitions and investments, or for asset enhancement works, working capital and capital expenditure required, the Reit&rsquo s manager said on Thursday (Mar 13).  

 

DBS and OCBC will be joint lead managers for the issue. 

 

Holders will receive distributions in arrears and may redeem the perpetual securities on the first reset date of Mar 20, 2030, or any distribution payment date falling after the first reset date.

 

The distribution rate will be reset on the first reset date and every five years thereafter. 

 

This will be at a rate equal to the Singapore Overnight Rate Average Overnight Indexed Swap plus the initial spread of 3.512 per cent. The distribution will be paid twice a year.

 

The perpetual securities are expected to be issued on Mar 20. 

 

ESR-Reit also announced it will be redeeming all of the outstanding Series 006 perpetual securities issued previously. The securities amount to S$75.25 million at a rate of 6.632 per cent.

 

&ldquo The net proceeds arising from the issue of the Series 011 perpetual securities will be used for the redemption of the more expensive Series 006 perpetual securities,&rdquo the Reit manager said.

 

This will allow ESR-Reit to achieve cost savings and optimise its capital structure, aligning with its strategy to adapt to shifts in the interest rate environment.

 

[SINGAPORE] ESR-Reit has priced S$125 million in subordinated perpetual securities at 5.75 per cent under its S$750 million multicurrency debt issuance programme.

 

The net proceeds arising from the issue of the securities will be used to refinance or repay existing borrowings or to finance or refinance ESR-Reit&rsquo s acquisitions and investments, or for asset enhancement works, working capital and capital expenditure required, the Reit&rsquo s manager said on Thursday (Mar 13).  

 

DBS and OCBC will be joint lead managers for the issue. 

 

Holders will receive distributions in arrears and may redeem the perpetual securities on the first reset date of Mar 20, 2030, or any distribution payment date falling after the first reset date.

 

The distribution rate will be reset on the first reset date and every five years thereafter. 

 

This will be at a rate equal to the Singapore Overnight Rate Average Overnight Indexed Swap plus the initial spread of 3.512 per cent. The distribution will be paid twice a year.

 

The perpetual securities are expected to be issued on Mar 20. 

 

Units of ESR-Reit closed up 2.1 per cent or S$0.005 at S$0.245 on Thursday before the announcement. 

ESR Reit : J91U -2% Management bought back 2.5 million units of ESR Reit on Feb 18 at an average price of S$0.249 per unit. This took the number of units acquired on the current buyback mandate to 26.5 million units or 0.345 per cent of the outstanding issued units.

 

On Feb 10, the Reit&rsquo s management proposed a unit consolidation which would see one consolidated ESR Reit unit granted for every 10 existing units in the Reit at a date to be determined.

 

The proposal received approval in principle from Singapore Exchange (SGX) on Feb 13, subject to compliance with SGX&rsquo s listing requirements for consolidated units, and unitholders&rsquo approval at the Reit&rsquo s forthcoming extraordinary general meeting over the proposed move.

 

ESR Reit Management believes the proposed unit consolidation will reduce trading fluctuations, decrease market capitalisation volatility, and better align unit price movements with general market trends.

 

Director transactions

The five trading sessions saw less than 40 director interests and substantial shareholdings filed for more than 20 primary-listed stocks.

 

Directors or chief executive officers filed nine acquisitions and no disposals, while substantial shareholders filed one acquisition and nine disposals.

ESR-REIT has launched and priced $100.0 million unsecured fixed rate notes at 4.05% per annum (p.a.) due 2030, as part of its capital management strategy. 

 

The offer will be issued under the $750 million Multicurrency Debt Issuance Programme with proceeds going towards the refinancing or repayment of existing borrowings, financing or refinancing acquisitions, investments, developments and/or asset enhancement works and financing of general working capital and capital expenditure requirements.

 

The offer was 2.5 times subscribed and about 75% of the offer was placed to institutional investors. The gearing of ESR-REIT will remain unchanged pre-and-post transaction. 

 

&ldquo This offer is a key part of our capital management framework to tap into alternative pools of capital when market conditions are conducive. By seizing the window of opportunity presented by stabilising interest rates, we have reinforced our balance sheet, positioning ESR-REIT for sustainable, long-term growth,&rdquo says Adrian Chui, CEO and executive director of the manager of ESR-REIT. 

The manager of ESR-REIT has announced a proposed unit consolidation of 10 existing units to one unit, held by unitholders of ESR-REIT. 

 

The rationale for the proposed unit consolidation is to reduce the magnitude of fluctuation in ESR-REIT&rsquo s unit trading price and reduce excessive volatility in its market capitalization, and allow for unit price movements that are more consistent with general market movements in terms of percentage changes. 

 

As an illustrative example, since Jan 1, 2022, ESR-REIT has traded in the range of 24.5 cents to 48.5 cents. Using a rounded unit trading price of 26 cents within the range mentioned above, the mandated Singapore Exchange (SGX) bid-ask spread of 0.5 cents for counters below $1/unit will result in a 1.9% change in unit trading price. 

 

With the consolidation ratio, the new theoretical price of a unit would be $2.60. With a unit trading price above $1/unit, a 1 cent bid-ask spread will now apply, resulting in a much smaller impact of 0.4% change in unit trading price. 

 

The REIT says that the proposed unit consolidation will also reduce interest from share speculators or punters, and short sellers on the units. 

 

As the aforementioned group often speculate on a stock&rsquo s decline, they bet and profit from a drop in prices of a financial instrument by borrowing a security and selling it on the open market, planning to repurchase it later for less money. 

 

The group says that its trading range of 24.5 cents to 48.5 cents since Jan 1, 2022 has resulted in share speculators or punters and short sellers showing keen interest in trading ESR-REIT as a &ldquo penny stock&rdquo . 

 

In addition, the proposed unit consolidation will also result in higher unit price denomination, therefore reducing brokerage trading costs as a percentage of each board lot of consolidated units. 

 

The proposed unit consolidation will rationalise the capital of ESR-REIT by reducing the large number of units in issue from 8,049,164,215 existing units in issue as at Feb 10, to at least 804,916,422 consolidated units following the completion of the proposed unit consolidation.

 

Although ESR REIT&rsquo s FY2024 distributions per unit (DPU) fell by 17% y-o-y to 2.119 cents, DPU is set to rebound this year. &ldquo We expect 2024 to be the trough,&rdquo says Adrian Chui, CEO of ESR REIT&rsquo s manager.  

 

In 2023 and 2024, ESR REIT restructured and rejuvenated its portfolio. It divested $535 million of assets. As a result there was no income from these divestments. Secondly, ESR REIT held an equity fund raising (EFR) in 2024, raising $300 million, increasing the number units in issue.

 

Proceeds from the EFR were used to acquire 20 Tuas South Ave 4 and ESR Yatomi Kisosaki Distribution Centre. The acquisitions were completed in December 2024. The two acquisitions will contribute a full year of income in 2025. 

 

In addition, ESR REIT decommissioned 2 Fishery Port in preparation for redevelopment into a cold storage facility. 

 

The rejuvenation of ESR REIT&rsquo s portfolio has lengthened its land lease to 43.8 years in 2024, from 37.4 years in FY2022. The portion of assets on freehold land and/or land lease of more than 30 years comprises 71.6% in FY2024. &ldquo In terms of portfolio land lease, underlying land lease two years ago was 37.4. Today, it&rsquo s close to 44 years, and this will help to reduce the land lease decay problem that affects Singapore portfolios of industrial land that usually has 20 or 30 years land lease remaining,&rdquo Chui says.  

 

New economy assets accounted for more than 70% of total assets in 2024. &ldquo New Economy, essentially means logistics and high specs,&rdquo Chui adds.  

 

On the capital management front, ESR REIT&rsquo s gearing has crept up to 42.8%. However, average cost of debt has fallen from 4.03% during 1HFY2024 to 3.84% for FY2024 due to early refinancing of existing 2025 debt at margins that were 15 bps lower. The loans for 20 Tuas South Avenue 14 and ESR Kisosaki Distribution Centre were done at cheaper margins than existing loans while refinancing of existing portfolio hedges were done at lower rates. 

 

&ldquo We expect interest cost to trend down because we are working at 2026 debt at lower margins for the $420 million of expiring debt. We have $75 million of expensive perpetual securities that we plan to either refinance with cheaper debt or use divestment proceeds to redeem,&rdquo Chui says, adding that he plans to divest a further $200 million of assets this year.

 

With a lower cost of debt, full-year contribution from the acquisitions and AEIs such as 7002 AMK, and double-digit rental reversions, NPI is likely to be higher y-o-y this year. On the cost front, 90% of utilities will pass through to the tenants. Repairs and maintenance costs are expected to rise but this amount is likely to be offset by an increase in service charge.  

 

In an update, CGS International says management expects these two acquisitions to be 3.0% DPU-accretive on a pro-forma basis. &ldquo As ESR REIT continues to rejuvenate its portfolio, we believe a recovery in earnings should start to gather momentum from FY2025. We maintain our Add rating for ESR REIT on attractive FY2025 dividend yield of 8.4%,&rdquo CGS says.

ESR-REIT has reported a distribution per unit (DPU) of 0.997 cents for the 2HFY2024 ended Dec 31, 2024, bringing its FY2024 DPU to 2.119 cents. On a y-o-y basis, the REIT&rsquo s 2HFY2024 DPU and FY2024 DPU declined by 15.9% and 17.4% respectively.

 

In 2HFY2024 and FY2024, the REIT reported losses of $113.7 million and $127.8 million respectively.

 

In FY2024, gross revenue fell by 4.1% y-o-y to $370.5 million while net property income (NPI) fell by 4.2% y-o-y to $261.7 million.

 

The declines for both were mainly due to the loss of income from the REIT&rsquo s divested non-core assets, 182-198 Maidstone Street in Australia and 81 Tuas Bay Drive in Singapore. The Australian property was divested in 2Q2024 while the Singaporean property was sold in 4Q2024. The decommissioning of the REIT&rsquo s property at 2 Fishery Port Road also contributed to the lower revenue. The divestments were partly offset by contributions from the acquisitions of ESR Yatomi Kisosaki Distribution Centre and 20 Tuas South Avenue 14 which were both completed in November 2024, as well as the asset enhancement initiatives (AEIs) for 7002 Ang Mo Kio Avenue 5 and 21B Senoko Loop. The AEIs were completed in 3Q2023 and 1Q2024 respectively.

 

Distributable income for the year fell by 14.9% y-o-y to $164.1 million due to the lower revenue and NPI as well as lower distribution of capital gains from the sale of investment properties in the previous years.

 

The applicable number of units for distribution in FY2024 rose by 3% y-o-y to 7.74 billion.

 

Meanwhile gross revenue for 2HFY2024 stood relatively stable at $189.6 million from $189.5 million in 2HFY2023 although NPI rose by 1.1% y-o-y to $133.8 million.

 

2HFY2024 distributable income fell by 14.7% y-o-y to $77.8 million while the number of units rose by 1.5% y-o-y to 7.8 billion.

 

As at Dec 31, 2024, the REIT reported positive rental reversion of 10.3%, compared to FY2023&rsquo s 11.1%. Its occupancy rate stood at 92.3%, down from FY2023&rsquo s 92.8%. Its weighted average lease expiry (WALE) stood at 4.2 years.

 

Gearing stood at 42.8% as at the same period while the REIT&rsquo s MAS adjusted ICR stood at 2.5 times. MAS refers to the Monetary Authority of Singapore while ICR refers to interest coverage ratio. The MAS streamlined its leverage requirements in November 2024.

 

As at Dec 31, 2024, cash and cash equivalents stood at $70.2 million.

 

In its release, Adrian Chui, CEO of the REIT manager, notes that the REIT&rsquo s &ldquo 4R strategy&rdquo is &ldquo beginning to deliver income growth&rdquo and is expected to translate into revenue and DPU growth. The four Rs refer to the REIT capitalising its balance sheet, rejuvenating its asset portfolio, recycling capital and reinforcing its sponsor&rsquo s support.

 

&ldquo Our portfolio' s quality has continued to stand out as we reported a positive 10.3% rental reversion &ndash underscoring the effectiveness of our portfolio rejuvenation strategy of divesting dated, non-core assets while maintaining a resilient and in-demand portfolio amidst evolving market conditions,&rdquo he says. &ldquo In addition, we successfully recycled the divestment proceeds into two transformational acquisitions: ESR Yatomi Kisosaki Distribution Centre in Japan and a 51% interest in 20 Tuas South Avenue 14 in Singapore, which are expected to be +3.0% DPU accretive on a pro forma basis.&rdquo

 

While Chui expects the REIT&rsquo s improved portfolio fundamentals to translate into NPI and DPU contributions in FY2025, he remains &ldquo cautiously optimistic&rdquo about demand for real estate, rental growth and operating costs in 2025 amid macroeconomic uncertainties, policy shifts in the US and inflation concerns.

It expects the divestment to be completed in Q1 2025

THE manager of ESR Real Estate Investment Trust (ESR Reit) has entered into a contract to divest an industrial building for about S$9.9 million.

 

The consideration represents a 1.5 per cent premium above its valuation of S$9.7 million, said the manager in a bourse filing on Wednesday (Jan 15).

 

The divestment is expected to be completed in the first quarter of 2025, and is not expected to have a material impact on ESR Reit&rsquo s net asset value and distribution per unit for the financial year ending Dec 31, 2025.

 

The property, located at 79 Tuas South Street 5, is a general industrial building in the Tuas Industrial Estate, with a gross floor area of 6,312 square metres.

 

The manager said: &ldquo Net proceeds from the divestment will be deployed to repay outstanding borrowings, finance potential acquisitions, asset enhancement initiatives and redevelopments and/or fund general working capital requirements.&rdquo

 

Upon completion of the divestment, the Reit&rsquo s portfolio will consist of 71 properties &ndash excluding one at 48 Pandan Road, which is held through a joint venture &ndash in Singapore, Japan and Australia, as well as investments in three property funds in Australia.