ESR-Reit gets nod to list 263m new shares

ESR-Reit has received in-principle approval from the Singapore Exchange to list 263 million new shares on the Mainboard.

This follows an announcement by the Reit on Dec 14, 2017, where it stated it was undertaking an equity fundraising to issue up to 263 million new units in the Reit to "rebalance" its capital structure, after acquiring an 80 per cent stake in a special-purpose vehicle (SPV) which owns a leasehold interest in 7000 Ang Mo Kio Avenue 5, Singapore 569877 for S$240 million.

ESR-Reit released results for its fourth fiscal quarter earlier on Jan 18, which showed distribution per unit (DPU) had fallen 6.7 per cent to 0.929 Singapore cent on the back of rental declines.

For the three months ended Dec 31, 2017, gross revenue fell 2.2 per cent to S$27.2 million, while net property income rose 1.2 per cent to S$19.9 million.

The trust incurred a negative 15.8 per cent rental reversion in FY17.

In a briefing with media, Reit management CEO Adrian Chui said that for most of the leases renewed in FY17, they had been contracted at a market peak in 2014 or 2015. It is thus expected that when adjusted to current market rates, there would be an inevitable decline.

While Mr Chui expects rental reversions to continue to be negative, he said that one positive sign is that the trust is getting more enquiries and property viewings at its industrial space. The trust has about 1.5 million sq ft of space up for renewal in FY18.

This positive sentiment was further reflected in a "Buy" call from DBS Group Research after the Reit released its earnings.

In a statement, DBS Research was confident that earnings had bottomed despite weak fourth-quarter results.

Given that the trust manager was acquired by a new sponsor, e-Shang Redwood, exciting synergies could be created with the Reit given the sponsor's large portfolio and leading position in North Asia, said the broker.

"We are optimistic that investors will over time appreciate the Reit's strategy to reconstitute its portfolio, which would enhance returns."