ESR-REIT - Maybank Kim Eng 2021-08-16: Ripe For Re-rating ~ Best Lock In The 6% Yield

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ESR-REIT (SGX:J91U)

ESR-REIT - Ripe For Re-rating ~ Best Lock In The 6% Yield

ESR-REIT - The last industrial REIT to re-rate; BUY the laggard

• Other small-mid cap industrial REITs with exposure to logistics and high-spec assets have done well year-to-date. ARA LOGOS Logistics Trust (SGX:K2LU) and AIMS APAC REIT (SGX:O5RU) are up 49% and 24% respectively. Yet ESR-REIT (SGX:J91U) is only up 15%, despite almost half its GRI stemming from logistics and high-spec assets. We believe this disparity in returns is unjust.
• In our view, the market has overlooked an incoming logistics star and is unduly hung up on its general industrial and business park exposure. In our report, we argue that negative perception of its general industrial segment is overplayed and that business park downside risks are largely priced in. Thus, we believe ESR-REIT is ripe for a re-rating going into 1H21/2022. This is premised on a confluence of factors;
  1. high probability for NAREIT index inclusion in September
  2. strong logistics sector tailwinds and;
  3. an attractive DPU profile.
• Initiate coverage on ESR-REIT with BUY rating and DDM (COE: 7.6%) based target price of S$0.55 (+21% upside).

Highest DPU profile; lock in the 6.5% yield at 1x P/B

• Investors buying in at this yield at 1x MKE FY21E P/B.

ESR Cayman - the new APAC industrial powerhouse

• ESR-REIT has a formidable sponsor, HK-listed ESR Cayman, who is set to rule out potential for further corporate activity in this space.

Favourable risk-reward going into 2H21/2022

• Refer to the 47-page report attached below for detailed analysis on ESR-REIT (SGX:J91U). Our scenario analysis suggests risks are to the upside, with a base-case to bear-case risk/reward ratio of 2.5:1 or bull-case to bear-case of 3.6:1.
• See
  • ESR-REIT's Share Price,
  • ESR-REIT's Target Price,
  • ESR-REIT's Analyst Reports,
  • ESR-REIT's Dividend History,
  • ESR-REIT's Announcements,
  • ESR-REIT's Latest News.
• Key upside/downside risks are higher/lower rental reversions, the manager’s ability to secure new tenancies at Changi Biz Park and corporate action.

Matthew Shim Maybank Kim Eng Research | Chua Su Tye Maybank Kim Eng | https://www.maybank-ke.com.sg/ 2021-08-16

SGX Stock Analyst Report BUY INITIATE BUY 0.55 SAME 0.55