ESR-Logos Real Estate Investment Trust (Reit) reported a 6.5 per cent decline in net property income (NPI) in the third quarter to S$192.7 million, from S$206.1 million in the year-ago period, its manager said on Wednesday (Oct 30).
Gross revenue fell 6.3 per cent to S$272.5 million for the three months ended Sep 30 from S$290.7 million previously. Net asset value stood at S$0.296.
The Reit’s manager attributed the negative impact on its gross revenue and NPI to the divestment of 11 non-core assets conducted in FY2023 and Q2 2024, with the proceeds pending deployment.
However, on a same-store basis, gross revenue increased 1.9 per cent to S$266.2 million and NPI rose 1.2 per cent to S$189.2 million year on year.
These figures excluded the non-core properties divested during FY2023 and Q2 2024, as well as 7002 Ang Mo Kio Avenue 5 and 21B Senoko Loop, which completed asset enhancement initiatives (AEIs) in Q3 2023 and Q1 2024, respectively, and 2 Fishery Port Road, which has been decommissioned.
This provides a like-for-like comparison across the relevant periods of Q3 2023 and Q3 2024, said the manager.
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Positive rental reversions
The new economy sectors of high-specs and logistics drove positive rental reversions, with the Reit recording an 11 per cent increase across all sectors, down from 12 per cent the previous year.
It reported a notable new economy exposure of 62.3 per cent, contributing to a portfolio occupancy of 91.3 per cent, up from 90.3 per cent in Q3 2023.
Its manager announced the divestment of 81 Tuas Bay Drive at 16.7 per cent premium to valuation, as well as proposed acquisitions of ESR Yatomi Kisosaki Distribution Centre and a 51 per cent interest in 20 Tuas South Avenue 14 for a total acquisition outlay of S$772.6 million approved.
It expects a positive full-year impact for rental reversions in FY2025.
It also noted that 75.4 per cent of the Reit’s debt are on fixed rates for 1.5 years, compared with 81.6 per cent as at Dec 31, 2023. This provides flexibility to capture future rate cuts.
As at end-September 2024, gearing stood at 36 per cent, with all debt expiring in FY2024 being refinanced.
The Reit’s debt expiry profile is expected to be well-spread out upon completion of proposed acquisitions, due end-November. Longer tenured loans will be put in place, lengthening the debt expiry profile.
Its debt cost reduced to 3.96 per cent following Fed rate cuts, down from 4.03 per cent in Q2 2024. It expects to enjoy a lower cost of debt through early refinancing of upcoming loans maturing in 2025 and 2026, with no prepayment penalties.
FY2025 outlook
In the upcoming financial year, the Reit’s manager expects year-on-year NPI to increase, driven by “meaningful” contributions from the proposed acquisitions, service charge increases, completed AEIs and positive rental reversions.
The proposed acquisitions and completed AEIs aim to recycle capital into modern new economy assets with freehold or longer land leases, incorporating sustainability features that enhance the Reit’s asset quality and earnings potential.
These acquisitions are projected to increase revenue, with completion anticipated by end-November. This will lead to a full-year revenue contribution starting in FY2025, alongside contributions from completed AEIs.
To address cost increases from service contracts due to higher labour costs and inflation in FY2025, a service charge increment has been announced.
Key expenses include utilities, which are 90 per cent on a pass-through basis, along with a planned solar panel rollout over the next two years.
Repairs and maintenance are expected to rise due to increases in labor costs, such as those driven by the progressive wage model, and general inflation. However, this rise will be partially mitigated through contract amalgamation to achieve economies of scale.
The Reit’s counter closed flat at S$0.28 on Tuesday.
