Growth was underpinned by an 11.7% y-o-y increase in rental reversion, a 3 percentage point (ppts) y-o-y rise in net property income (NPI) margin and inorganic contributions.
In the FY2025, ESR-REIT’s revenue grew 20.4% y-o-y to $446.0 million while NPI came in 25.6% higher y-o-y at $328.7 million.
On a same-store basis, FY2025 NPI grew 2.7% y-o-y, driven by positive rental reversion, NPI contributions from completed asset enhancement initiatives (AEI) and lower utilities expenses.
The improvement in rental reversion was thanks to strong demand observed in the high-spec and logistics segments.
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“Although around 28% of leases are due for expiry in FY2026 and largely marked to market, we expect rental reversion to moderate to mid-single digits,” writes Liu in her Feb 4 report.
However, due to ongoing AEI, portfolio occupancy slid sequentially by 1.2 ppts.
Occupancy stood at 91.1%, with the REIT’s management confident of improvement in the FY2026 following the divestment of Hotel Strata Lot and gradual backfilling at 16 Tai Seng to about 70%.
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Meanwhile, the Maybank analyst notes that on a pro-forma basis, gearing would be 38.5%, while cost of debt eased following the grant of an investment-grade rating.
She writes: “We expect the income vacuum post divestment to be partially offset by higher occupancy, sustained midsingle-digit rental reversion, a potential Japan acquisition and capital top-ups.
“Cost of debt fell further to 3.35% with guidance for flattish in FY2026 and about 3% in FY2027. Valuation for Singapore and Japan assets dipped due to land lease decay and depreciation of the Japanese Yen while the Australian dollar improved due to cap rate compression,” adds Liu.
ESR-REIT has also divested $439.1 million of assets at prices of up to 3.5% premium to valuation.
To this end, Liu notes that the REIT’s focus in the FY2026 will shift towards acquisitions in Japan, with equity fundraising unlikely to be an option.
She writes: “The divestments are expected to complete by May, with income still flowing through until then. Organic growth from the completion of AEI at 16 and 29 Tai Seng Street will support topline growth.”
“In addition, the redevelopment of 2 Fishery Port Road, with an estimated yield on cost of 7% and capital expenditure (capex) of about $200 million to $250 million, is expected to further unlock value,” adds the analyst.
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With this, Liu has lowered her cost of equity (COE) to 7.3% from 7.5%, in relation to lower risk-free rates and the REIT’s reduced gearing.
The Maybank analyst has thus updated her valuation model to factor in ESR-REIT’s divestment of eight assets in December 2025 which are expected to completed this May, the divestment of Hotel Strata Lot with its completion period within this March and lastly, the ramp-up in occupancy at 16 Tai Seng Street.
“We lower our FY2025/FY2026 DPU by 3.8% due to the potential income vacuum from the recent divestments, while maintaining our target price of $3.00 after applying a lower COE on the back of improved gearing,” writes Liu.
She surmises: “While concerns remain over continued NAV erosion from short land tenures and the frictional DPU impact from ongoing portfolio reconstitution, we believe the relatively high yield, efforts to reduce assets with land tenure below 15 years to about 10% via divestments and a potential Japan acquisition more than compensate for these risks.”
As at 5.11 pm, units in ESR-REIT are trading five cents lower at $2.70.
