ESR-REIT - CGS-CIMB Research 2021-05-06: Pulling Multiple Inorganic Growth Levers

ESR-REIT (SGX:J91U) | SGinvestors.io ESR-REIT (SGX:J91U)

ESR-REIT - Pulling Multiple Inorganic Growth Levers

  • ESR-REIT (SGX:J91U) announced DPU-accretive acquisitions and asset enhancement initiatives (AEIs) totalling ~S$269m to be funded via debt and equity. It finally made its maiden overseas expansion via a 10% stake in 37 Australian logistics assets.
  • Reiterate ADD. ESR-REIT offers attractive FY21-23F dividend yields of 7-8%.

ESR-REIT announced acquisition of 1 logistics asset and 2 AEIs in Singapore

  • ESR-REIT announced the purchase of 46A Tanjong Penjuru, a modern ramp-up logistics facility, for a total acquisition cost of ~S$124.7m (initial yield 5.7% pa). The logistics facility has a ~524k sq ft gross floor area (GFA), a 30-year lease term (commenced 1 May 2006; 14-year renewal option), and is fully committed with six tenants. Potential rental upside would come from AEI by air-conditioning the warehouse.
  • ESR-REIT also announced AEI for two high-specification properties, at 16 Tai Seng Avenue (S$25.9m) and 7000 Ang Mo Kio Avenue 5 (S$ 53.3m), with yield on cost of 7%.

Inaugural overseas acquisition in Australia

  • ESR-REIT is acquiring a 10% stake in the ESR Australia Logistics Partnership which holds 36 Australian assets (32 income producing properties of which 81.4% by value are freehold assets; 2 development properties; 2 land parcels) for a total cost of S$64.9m (includes fees, post-tax dividend yield: 6.8%). It expects the acquisition to be completed by May 2021.
  • 55.3% of the leases (by rental income) in the fund portfolio are single-tenant master leases with longer lease tenures and built-in rental escalations (2.5-3% p.a.).
  • Post-acquisition, Australia will account for 2.3% of ESR-REIT’s portfolio rental income, providing it geographical diversification. We believe this positions ESR-REIT to capture attractive opportunities in the Australian logistics market where we expect demand will remain strong, driven by infrastructure investments and ecommerce growth.

Equity fund raising exercise to raise up to S$150m

  • The Singapore/Australia acquisitions are DPU accretive and could lift DPU by 0.4%/2.9% on a proforma basis. The Australian acquisition will be funded via debt. Acquisition of 46A Tanjong Penjuru and the AEIs will be funded via a mix of debt and equity.
  • ESR-REIT expects to raise up to S$100m/S$50m through a private placement/preferential offering exercise.
  • Assuming 400m new units are issued at an illustrative price of S$0.375 per unit (8.2% discount to VWAP), the transactions could result in an all-in 1% DPU accretion and reduce ESR-REIT’s gearing from 42.1% to 41.4%. Gearing will decline further to 40.4% once it completes the divestment of two assets as announced on 28 Apr 2021.

Reiterate ADD on ESR-REIT

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-06
SGX Stock Analyst Report ADD MAINTAIN ADD 0.494 SAME 0.494