Warburg-backed ESR REIT says 2019 will be a balanced year for acquisitions

Warburg Pincus-backed ESR REIT – that merged with Viva Industrial Trust last year to create Singapore’s fourth-largest industrial REIT – is planning to largely concentrate on Singapore in the near term as it predicts 2019 to be a “balanced” year in terms of overall acquisitions.

The REIT, which currently holds assets worth over $2.2 billion mostly in Singapore, has said while it is not in a rush to go overseas, when it does so “eventually”, it may look at countries like Korea, Japan, China and Australia. It will effectively look at countries where its parent ESR already has an established presence.

“We think the next few years, opportunities for our own portfolio and acquisitions are still going to be in Singapore. The parent firm still has plans for us and there is a pipeline but we don’t think that we are in a rush to go overseas. When we do go overseas, it will be where our parent is – Australia, China, Japan, Korea – because they (ESR) have a full real estate value chain there,” said ESR Funds Management CEO Adrian Chui on Friday at a press briefing to announce the REIT’s fourth quarter financial results since the merger with Viva Industrial trust.

Real estate is a local game and one needs a full team of people including marketing, leasing and management, he added.

For the fourth quarter ended December 2018, ESR-REIT posted a distribution per unit (DPU) of 1.005 cents (SGD), up 8.2 per cent year on year, after including Viva’s revenue and expenses in the group’s financial results. The DPU for the year was 3.857 cents.

The REIT clocked a gross revenue for the quarter at $43 million. For the whole of last year the gross revenue was $115.7 million, 43 per cent higher than the previous year.

“We have limited resources and over the next 2-3 years, I have more ability to extract value for my shareholders doing what I have in my current portfolio. It does not mean, I don’t want to go overseas. I will have to go overseas eventually,” Chui added.

ESR recently announced a new core joint venture with global real estate investor AXA Investment Managers – Real Assets and a major sovereign wealth fund to acquire “core stabilised logistics assets” in Japan.

In November last year, ESR also partnered Allianz to set up a logistics investment platform in India with an immediate equity commitment of $225 million.

When asked if ESR REIT would look at Malaysia and Indonesia  to expand overseas, Chui said, “to go to Malaysia or Indonesia, ESR can do it and I think they are looking at it. But in Australia, China and Japan they are already established.”

Addressing the media, Chui also added that the firm continues to see the potential threat of a global trade war impacting businesses in Singapore in 2019 and possibly having a negative impact on the demand for industrial space. However, the firm is cautiously optimistic about prospects in the sector given the improving supply-demand metrics pointing to an increasing stable industrial real estate market.

“In light of the macroeconomic environment, we have also reduced our financing risks by hedging a significant proportion of our capital structure for a longer duration while expanding our banking relationships and widening our pools of capital. In the year ahead, we will continue to focus on extracting value for unit-holders through operational synergies via integration, AEI opportunities, and value-enhancing asset acquisitions to deliver stable and sustainable returns for unit-holders,” he said.

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