On July 16, when ESR-REIT announced its 1H2020 results it also announced a merger with Sabana Shariah Compliant Industrial REIT. For the purpose of the merger, ESR-REIT and Sabana REIT had to undertake valuations. ESR-REIT’s portfolio valuation fell by 1.6% compared to Dec 31, 2019, to $2.892 billion. In the meantime, the number of units increased by 1.2% compared to Dec 31, 2019 to 3,530.9 million units, causing a decline in net asset value to 41 cents, from 43.3 cents as at Dec 31.

On Aug 5, the SGX asked ESR-REIT’s manager for the details of the $46.68 million decline. The manager said that the decline was due to a combination of factors. Most importantly the reduction in land leases for certain properties with remaining tenures of less than 12 years affects a major property, Viva Business City in Chai Chee. Two other properties also have land leases of less than 10 years, 11 Lorong 3 Toa Payoh and 1 Third and Fourth Lok Yang Road. The conversion from single tenancy to multi-tenancies resulted in a decrease in net lettable area for three properties (see table), and the alignment of market rent and market rent growth assumptions with weaker market conditions due to economic contraction caused by the COVID-19 pandemic also affected UE BizHub East. 

Separately, Sabana REIT’s portfolio declined by around 5%, caused by some properties converting to multi-tenant buildings which resulted in lower rentals and lower occupancies.