SINGAPORE (July 14): ESR-REIT, formerly known as Cambridge Industrial Trust, has not had a lot going for it recently.
A fire at its property at 30 Toh Guan Road in 2Q17, along with effects of multi-tenanted building (MTB) conversions and the divestment of two properties since the second half of 2016, saw ESR-REIT’s 2Q distribution per unit (DPU) fall 11.3% y-o-y to 0.956 cents.
See: ESR-REIT declares 11.3% lower 2Q DPU of 0.956 cents
In a report on Thursday, CIMB Research says ESR-REIT’s 2Q17 DPU was below expectations –accounting for just 22% of its full-year forecast.
CIMB is keeping its “hold” call on ESR-REIT with a slightly higher target price of 56 cents, up from 55 cents previously.
The REIT’s existing portfolio is just “grinding along,” says CIMB lead analyst Yeo Zhi Bin.
Portfolio weighted average lease expiry (WALE) decreased to 3.4 years, from 3.7 years in the preceding quarter; portfolio occupancy remained flat q-o-q at 95.4%; and rental reversion registered at -18.3% for the first half of 2017.
However, Yeo says MTB conversions, which have dragged ESR-REIT’s performance, is coming to an end.
“Leases due for renewal in FY17 were brought down to 14.8% of gross rental income (GRI), from 21.5% at the start of 2017,” says Yeo. “ESR-REIT is at the tail-end of the MTB conversions.”
“In 2012, 55% of the portfolio represented STB (single-tenanted buildings) expiring in the next three years. Today, only 13% of the portfolio represents STB expiring in the next three years,” he adds.
But while Yeo sees a bottoming of ESR-REIT’s organic performance, he cautions that the possible recovery is likely to be long-drawn.
“That said, with support from sponsor-developer ESR, this could be exciting times for ESR-REIT as it looks at M&As, asset acquisitions and re-development opportunities to fuel growth,” Yeo says.
As at 12.19pm, units of ESR-REIT are trading 1 cent lower at 59 cents.