ESR-LOGOS Real Estate Investment Trust (ESR-Logos Reit) posted an 18.6 per cent drop in distribution per unit (DPU) to S$0.01122 for the first half ended Jun 30, from S$0.01378 in the previous corresponding period.
It also announced acquisitions of two facilities in Japan and Singapore for S$772.6 million.
On Wednesday (Jul 31), the manager attributed the decline to the divestment of 11 non-core assets and lower distribution capital gains from the sale of investment properties in prior years.
It added that the equity fundraising done last year resulted in an enlarged unit base of 4.4 per cent. Proceeds from the divestments and equity fundraising have not been redeployed, therefore contributing to the lower DPU.
The equity fundraising comprises a private placement of 454.5 million new units done in February 2023 and a preferential offering of 460.8 million new units completed in April last year.
The distribution will be paid out on Sep 17, after the record date of Aug 8.
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ESR-Logos Reit’s net property income (NPI) fell 9.2 per cent to S$127.8 million from S$140.8 million in H1 2023.
Revenue for the half-year period declined 8.1 per cent to S$180.9 million from S$196.8 million.
The lower NPI and top-line growth came mainly from the loss of income from the sale of an Australian non-core asset in Q2 2024 and properties amounting to S$440.6 million. The decommissioning of 2 Fishery Port Road also contributed to the fall, said its manager.
But it noted that the declines were partially offset by additional income contributions from two assets – 7002 Ang Mo Kio Avenue 5 and 21B Senoko Loop – which completed their asset enhancement initiatives in Q3 2023 and Q1 2024, respectively.
The amount available for distribution tumbled 15 per cent year on year to S$86.3 million, mainly due to lower NPI and distribution of capital gains. This was partially offset by lower borrowing costs, said the manager.
Borrowing costs were 19.7 per cent lower in H1 due to interest savings from the repayment of borrowings via proceeds from equity fundraising and the disposal of properties completed last year.
As at Jun 30, the Reit’s weighted average lease expiry (Wale) stood at 3.3 years, while its gearing stood at 36.5 per cent.
It also had debt headroom of S$692.8 million and access to S$229.8 million of undrawn revolving credit facilities as at the end of H1 2024.
Adrian Chui, chief executive and executive director of the manager, said ESR-Logos Reit is “well positioned” to undertake growth initiatives as both construction costs and cost of funding are expected to ease.
New acquisitions
Separately, the Reit manager said it plans to acquire a 100 per cent interest in a logistics facility in Japan, as well as a 51 per cent interest in a high-spec manufacturing plant in Singapore.
The total purchase outlay is about S$772.6 million. The proposed acquisitions are expected to be 1.8 per cent accretive to its DPU on a pro-forma basis, assuming that the purchase was completed on Jan 1, 2023.
The two properties are ESR Yatomi Kisosaki Distribution Centre in Nagoya, and 20 Tuas South Avenue 14. They will be purchased for about 38.7 million yen (S$340.1 million) and S$444.6 million, respectively.
The freehold asset in Japan has a total land area of 79,096 sqm and a net lettable area of 134,863 sqm. It has a Wale of 2.7 years as at Jun 30. It will be acquired at a 2.3 per cent discount to valuation and 4 per cent NPI yield.
The addition of the Nagoya distribution centre will increase the trust’s logistics assets in Japan to 8.9 per cent from 3.7 per cent, said the manager.
It also noted that the property is currently not fully occupied and ESR Japan is in advanced talks with a potential tenant, which could raise occupancy to 93.2 per cent and Wale to 2.8 years.
Meanwhile, the Singapore asset has a total land area of 252,733 sqm and a net lettable area of 247,063 sqm. It has a Wale of 11.2 years, as at end-June. It will be acquired at a 2.3 per cent discount to valuation and a NPI yield of 6.1 per cent.
Chui said at the briefing of the Reit’s financial results on Wednesday that these two acquisitions are “on-strategy” assets, meaning they are new, freehold assets which are in demand and have green sustainability features.
The acquisitions will be funded by debt financing, the issuance of new units to existing unitholders to raise up to S$194 million, and consideration units of up to S$60.3 million.
The chief executive added that the Reit manager did not have enough debt headroom to fund the new acquisitions. Therefore, the equity fundraising of S$194 million is required so that the Reit’s pro forma gearing will stay at a low of 41 per cent.
Chui said the deal could improve the trust’s logistics and high-specs industrial portfolios, as well as extend underlying land leases to create a resilient and future-ready portfolio.
Commenting on its property located at Changi Business Park, ESR BizPark@ Changi, Chui said occupancy stood at around 70 per cent.
Although the business park comprises a small part of its whole portfolio, which is mostly logistics, the Changi property remains one of its better assets due to its location, he added.
That said, Chui added that the manager will not rule out divesting its property at Changi Business Park. He said while the manager is focused on divesting non-core assets, it will be open to divesting core assets if it makes sense to do so for the right price.
Units of ESR-Logos Reit were trading flat at S$0.275 as at 9.48 am on Wednesday.
