SINGAPORE (Apr 20): The manager of ESR-REIT, formerly known as Cambridge Industrial Trust, has declared an earnings per unit (EPU) of 0.847 cent for 1Q18, which is 15.6% lower than the 1Q EPU of 1.004 cents a year ago impacted mainly by the new units issued under its recent preferential offering and the distribution reinvestment plan units issued since 1Q17.
In March, the REIT manager launched a preferential offering of about 262.8 million new units at 54 cents each to raise $141.9 million to fund an acquisition and repay debt.
Assuming the units under the preferential offering were only entitled to distributable income from Mar 28 to 31, adjusted DPU for 1Q18 was 1.008 cents or 0.4% higher than a year ago.
See: ESR-REIT launches preferential offering to raise $141.9 mil in proceeds
Gross revenue for the quarter grew 21.2% to $33.6 million from $27.7 million in 1Q17, while net property income (NPI) grew 20.8% to $23.8 million from $19.7 million previously.
The revenue growth was largely attributable to new contributions from the trust’s Dec 2017 acquisitions of 8 Tuas South Lane and 7000 Ang Mo Kio Avenue 5.
These was however partially offset by revenue reduction from the lease conversion of property at 21B Senoko Loop to multi-tenancy, expiries and non-renewal of leases at property 31 Kian Teck, 1/2 Changi Road, 12 Ang Mo Kio and 30 Toh Guan and the absence of revenue from divestments completed since 1Q17.
Property expenses grew 22.1% to $9.8 million from $8 million a year ago due to property tax and other property expenses from acquisitions, specifically that of 7000 AMK.
Borrowing costs rose 21.1% to $6.1 million from $5 million due to higher loan interest expense from incremental borrowings to partially fund ESR-REIT’s new acquisitions in Dec2017.
Management fees rose 21.7% to $2 million from $1.7 million a year ago due to higher assets under management (AUM) from new acquisition. For the current quarter, ESR-REIT’s manager has elected to receive its management fe wholly in cash.
An income tax of $0.7 million was also paid over the latest quarter as compared to none in 1Q17. This was related to tax on the profits of 7000 AMK for Jan 2018, prior to its conversion to a limited liability partnership from 1 Feb 2018.
Despite noting an increase in leasing enquiries, ESR-REIT’s manager says it expects the leasing market to remain competitive due to continuing new supply, which is not expected to abate until late 2018. As such, it expects the portfolio performance to continue being impacted by the prevailing downward pressure on rents, resulting in further negative rental reversions.
Nevertheless, ESR-REIT's manager says it will continue to focus on improving asset quality and maintaining occupancy in the current challenging leasing market.
ESR REIT recently proposed to merge with Viva Industrial Trust (VIT) to acquire all of the latter’s stapled securities held by its stapled securityholders.
See: ESR-REIT announces merger plans with Viva Industrial Trust
In the latest announcement of the REIT’s 1Q results, the manager reiterates that there is no certainty any transaction will materialise from the current discussions on the matter.
Units in ESR-REIT closed 0.9% lower at 54 cents on Thursday.
