The Motley Fool

What Investors Should Know About ESR-REIT’s Latest Earnings, Valuation, and Merger

ESR-REIT (SGX: J91U) invests in industrial real estate, and has a portfolio of 47 industrial properties located across Singapore as of 31 March 2018.

There are three things about the REIT that investors may want to know about right now: Its latest financial performance and valuation, and merger with Viva Industrial Trust (SGX: T8B).

Our FREE SGX stock pick!


We reveal 1 fast growing, Singapore stock pick flying under the radar, absolutely FREE!

Financial performance

Here’s a table showing important items from ESR-REIT’s income statement for 2018’s first quarter:

Source: ESR- REIT earnings update

We can see that ESR-REIT’s gross revenue for the quarter grew strongly by 21.2%. The REIT attributed the growth to new contributions from two property acquisitions that were completed in December 2017.

But, the REIT’s DPU fell by 15.6% year-on-year, due to a preferential offering on March 2018 that resulted in a higher unit count.

As of 31 March 2018, ESR-REIT had a gearing ratio of 30.0%, which is well below the regulatory gearing limit of 45%. Meanwhile, its occupancy rate stood at 90.7%.


There are two useful valuation metrics for assessing REITs. They are the price-to-book (PB) ratio, and the distribution yield.

The table below shows ESR-REIT’s PB ratio and distribution yield. It also shows the respective averages for the two valuation metrics for the 42 REITs that are in Singapore’s stock market.

Source: Stock Facts on; data as of 25 June 2018

We can see that ESR- REIT is trading at a discount to the market, given its lower PB ratio, and higher distribution yield.

Merger with Viva Industrial Trust

ESR-REIT has proposed a merger by way of a trust scheme with fellow industrial REIT Viva Industrial Trust. The merger, if successful, would result in the fourth largest industrial REIT in Singapore’s stock market by asset size; the combined entity has an asset size estimated to be S$3.0 billion. For perspective, ESR-REIT had total assets of S$1.68 billion at the end of 2018’s first quarter. The merged-entity will be managed by ESR-REIT’s current Manager.

The deal will happen via an acquisition of Viva Industrial Trust’s stapled securities at a price of S$0.96 each, which works out to S$936.7 million. ESR-REIT intends to pay for 10% of the acquisition with cash, and the other 90% by issuing new units of itself at S$0.54 per unit.

According to ESR-REIT’s number-crunching, the deal is accretive to its unitholders. Assuming that the merger was completed on 1 January 2017, ESR-REIT’s DPU in 2017 would have increased by 5.6%.

The merger will require the stamp of approvals from the court, as well as unitholders of ESR-REIT and Viva Industrial Trust. If all the approvals are obtained smoothly, the deal is expected to be completed in the third quarter of this year.

Worried about the overall state of the market? Do you know the 1 thing you should never do in the stock market? The Motley Fool Singapore’s new e-book lays out a plan to handle market crashes, details the greatest advantage you have as an investor, and looks at decades worth of market data to bring you the smartest insights on investing. You can download the full e-book FREE of charge—Simply click here now to claim your copy.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.