For its 1HFY2025 ended June, ESR REIT reported a distribution per unit of 11.239 cents, which is in line with estimates.
Gross revenue increased by 23.2% y-o-y to $222.9 million, after adding full-period contributions from the Yatomi Kisosaki Distribution Centre in Japan and the 51% stake in 20 Tuas South Avenue 14 in Singapore. The REIT enjoyed higher rental from 7002 Ang Mo Kio Avenue 5 and 21B Senoko Loop as well following asset enhancement works.
Net property income in the same period was up 30.1% y-o-y to $166.3 million, thanks to lower utility costs and higher service charges.
NPI margins, having improved to around 75% in 1HFY2025, can likely be maintained at this level going forward, according to Lai and Tan.
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The REIT's portfolio occupancy was down marginally by 0.2 percentage points to 91.2%, but it managed to enjoy continued positive rental reversions of 9.7% in 1HFY2025.
"We have been positively surprised by ESR REIT’s strong underlying portfolio performance, which has driven robust growth in core DPU. With the majority of EREIT’s portfolio rejuvenation efforts largely completed, we anticipate a rebound in profits that will be increasingly driven by core operational earnings," state Lai and Tan.
They expect further earnings growth from completed asset enhancement works and redevelopments, including two that are underway, and that rental reversions of between 6 and 7% can be achieved in the current 2HFY2025.
"While there are currently some transitional vacancies within the portfolio, management remains confident in their ability to backfill these spaces," they add.
With rates poised to go lower, the DBS analysts have also assumed lower financing costs in FY2025 of 40 basis points y-o-y.
The REIT is now trading at around its NAV, but with an "attractive" forward yield of over 8%, it is deemed a "buy" by the DBS analysts.
ESR REIT units changed hands at $2.81 before the lunch break, up 3.69% for the day and up 28.18% year to date.
