ESR-REIT (SGX:J91U)
ESR-REIT - Good First Steps
- ESR-REIT's first set of quarterly results post-merger.
- Still at discount to large portfolio peers.
- S$0.575 fair value.
4Q18 results within expectations
- ESR-REIT (SGX:J91U)'s 4Q18 results were within expectations. 4Q18 revenue increased 114.9% y-o-y to S$58.4m while NPI increased 112.1% y-o-y to S$42.3m. The increase in revenue and NPI were mainly due to
- full quarter contributions from 8 Tuas South Lane and 7000 Ang Mo Kio Avenue 5 (“7000 AMK”) which were acquired in Dec 2017,
- the inclusion of Viva Industrial Trust's portfolio from 16 Oct 2018, and
- additional contributions from 15 Greenwich Drive which was acquired on 25 Oct 2018.
- Borrowing costs increased 106.7% y-o-y to S$10.9m. 4Q18 distributable income increased 140.2% y-o-y to S$29.3m while DPU increased 8.2% y-o-y to 1.005 S cents on the back of an enlarged unit base.
- All in all, ESR-REIT's FY18 DPU came up to 3.857 S cents or 101% of our initial full-year forecast.
In a stronger position post-merger
- As at end-FY18, ESR-REIT’s portfolio consists of 57 properties in Singapore, with a total GFA of 14.1m sq ft. Portfolio occupancy stands at 93.0% as at end-FY18 and rental reversions have improved on a y-o-y basis (-2.9% for FY18 vs. - 15.8% for FY17).
- In terms of exposure to asset types that command higher rental rates, business parks and high-specs assets contribute 45% of ESR-REIT’s portfolio’s valuation.
- We do note that ESR-REIT’s 41.9% gearing ratio falls on the higher end of the spectrum (vs. ~35% average for all industrial S-REITs), but that said, we see it as a positive that the portfolio remains 100% unencumbered and the weighted debt expiry has improved from 2.2 years as at end-3Q18 to 2.7 years as at end-FY18. In addition, over 83% of interest rate exposure is fixed for the next 3.0 years.
Discount to large portfolio peers
- Since our initiation (see report: ESR-REIT - New Kid On The Block dated 14-Dec-2018), ESR-REIT’s share price has increased 6.0% from S$0.50 to S$0.53 as at 18 Jan’s close. However, ESR-REIT is still trading at a discount to industrial REITs that also have large industrial portfolio.
- As at 18 Jan’s close, ESR-REIT is currently trading at 1.13x P/B (versus the 1.23x average of its large portfolio peers), and a dividend yield of 7.2% FY19F yield (vs. the 6.1% current yield of its large portfolio peers).
- After adjustments, our fair value dips from S$0.59 to S$0.575. We re-iterate BUY on ESR-REIT.
Deborah Ong
OCBC Investment Research
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https://www.iocbc.com/
2019-01-21
SGX Stock
Analyst Report
0.575
DOWN
0.590
