Natarajan notes that there has been “muted” tariff impact so far across the industrial REIT’s portfolio in Singapore, Australia and Japan; and management is eyeing more divestments on the cards.
There are also potential interest cost savings from the refinancing of FY2026 loans, he adds, with overall interest costs for FY2025 expected to be at 3.5% levels, a 35-basis point decline from FY2024.
“ESR-REIT’s share price has shown greater price stability post the recent 10-to-1 share-consolidation on May 5, with the tighter bid-ask spreads reducing share price volatility and speculative activities, in our view,” writes Natarajan.
Divestment plans
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ESR-REIT plans to divest another $400 million in assets over the next two years, with proceeds mainly going towards debt repayment, share buybacks and asset enhancements.
Year to date, ESR-REIT has divested two assets for $17 million at a 3.5% premium to valuation, and management is currently in “advanced stages” of divesting its non-core hotel asset located at 2 & 4 Changi Business Park Avenue 1.
According to Natarajan, ESR-REIT has identified “more shorter-lease non-core Singapore assets” of $300 million to $400 million, which management plans to divest by next year.
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“Acquisitions are currently not a priority, with management’s focus on asset enhancements to unlock value,” he adds.
‘Muted’ tariff impact
Natarajan notes that certain ESR-REIT tenants have requested for slightly shorter lease renewals, such as two years instead of a typical three-year lease. “However, such renewals are typically signed at a slightly higher rent (5% higher).”
ESR-REIT’s management claims there have not been any impacts or tenant shifts from its portfolio due to the upcoming Johor-Singapore Special Economic Zone (JS-SEZ).
Overall, industrial demand remains firm across ESR-REIT’s markets, says Natarajan, with rental reversions expected to remain in positive mid-single-digits of 5% to 7%, with stable occupancy over above 90%.
ESR-REIT also recently issued $125 million in perpetual securities at 5.75% per annum. Partial proceeds have been used to redeem the more expensive $75 million perpetual securities at 6.632% per annum in May.
As at 10.56am, units in ESR-REIT are trading 1 cent higher, or 0.41% up, at $2.43.
