In a results briefing on Jan 20, Adrian Chui, CEO of ESR-REIT’s manager says that he plans to look overseas for growth some time this year. Sponsor and major unitholder ESR Cayman has a presence in six countries with US$26.5 billion in assets under management. According to Chui, 30% to 40% of this portfolio could be potential acquisition targets for ESR-REIT. He is looking at both income producing properties and development properties.
“I do see better value doing overseas acquisitions than anything else,” Chui says. Since capitalisation rates are lower in Japan, with income producing properties yielding capitalisation rates of 4%, development properties make more sense. Australia is second geography that makes sense for ESR-REIT.
“Our strategy is clear, to focus on organic growth in Singapore and to grow our portfolio overseas to diversify and to impove our underlying land leases and that will add more value to my unitholders, to address underlying land leases,” Chui says. He is also open to acquiring third party portfolios in those countries where ESR Cayman has a presence.
SEE: No merger for Sabana REIT with ESR-REIT
For ESR-REIT’s asset enhancement initiatives (AEI) Chui says at least four assets are likely to undergo extensive AEIs. Their valuations range from $40 million to $80 million. To top up loss of DPU, ESR-REIT may use some of its $60 million of capital gains. “We may use this to support loss of income,” Chui says. The assets are general industrial assets and are likely to be converted into high tech assets, or assets with high specs.
When asked whether ESR-REIT is likely to get involved in M&A, Chui replies, “I never rule out anything. But the focus is on benefits for unitholders and overseas acquisitions offer more value for us.”
ESR-REIT’s FY2020 total distribution per unit (DPU) including distributions from capital fell by 30.2% y-o-y to 2.8 cents, blamed largely on Covid-19 related tenant support. “Our portfolio is showing signs of stabilisation in terms of occupancy and rental collection although 1H2020 may continue to be soft. We expect rental reversions to stay flat, and we will drive occupancy and enhance our properties,” Chui says.
Achieving a DPU of 2.8 cents in FY2021 will not be a challenge. NPI could see 2% to 3% growth this year from stabilisation and absence of tenant support. Declining cost of debt could add 2% to 3% to DPU growth, and DPU could be further boosted with acquisitions.
