ESR-REIT (SGX:J91U)
ESR-REIT - Stable Portfolio
- ESR-REIT's 3Q21 core DPU rose 1.7% y-o-y to 0.712 cents.
- No rental rebates were provided.
- Year-to-date rental reversions at -2.2%.
ESR-REIT's 3Q21 business update
- ESR-REIT (SGX:J91U)’s revenue and net property income in 3Q21 rose 7.2% and 8.6% y-o-y to S$61.1m and S$43.9mrespectively, largely due to the acquisitions of 46A Tanjong Penjuru and 10.0% interest in ESR Australia Logistics Partnership, as well as the absence of provision for COVID-19 rental rebates.
- ESR-REIT's 3Q21 core DPU came in at 0.712 cents (+1.7% y-o-y), at 23% of our initial full-year forecast which we consider to be broadly in-line with our expectations.
- On a q-o-q basis, core DPU fell 5.6% due to an enlarged unit base after ESR-REIT completed its equity fund raising.
Leasing momentum for business parks remained soft
- Portfolio occupancy stayed healthy at 91.2% (higher than JTC’s average of 90.1%) with stable rental collection of 98% of total receivables. Year-to-date rental reversions came in at -2.2% (vs -1.6% in 1H21), dragged by renewables of some large tenants in the business park segment, but partially offset by positive rental reversions from the general industrial and logistics/warehouse segments.
- Leasing momentum for business parks remained challenging due to prolonged work-from-home (WFH) measures in Singapore.
- We expect rental reversions to be slightly negative for FY21, given the still soft economy and large pipeline supply across the various industrial space.
Ongoing AEIs and proposed merger with ALOG to drive future growth
- The asset enhancement initiatives (AEIs) at 19 Tai Seng Avenue are expected to complete in 4Q21 due to delays arising from Singapore’s Heightened Alert in 2Q21. AEI at 7000 Ang Mo Kio Avenue 5 is expected to commence end-Oct and target to complete by 3Q23.
- Separately, ESR-REIT announced jointly with ARA LOGOS Logistics Trust (SGX:K2LU) a proposed merger of the two REITs by way of a trust scheme of arrangement. The proposed merger is expected to be DPU accretive with pro-forma FY20 DPU increasing 5.8% for ESR-REIT. We are largely positive on this proposed merger and recommend unitholders of ESR-REIT to accept and vote in favour of the merger.
- After adjustments, we increase our fair value estimate slightly from S$0.51 to S$0.52 for ESR-REIT.
- See
ESG Updates for ESR-REIT
- ESR-REIT’s environment score trails its peers due to fewer green-certified buildings in its portfolio relative to peers. However, its human capital development ranks higher than industry average, with comprehensive employee development efforts including strong managerial and leadership development training initiatives.
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2021-10-28
SGX Stock
Analyst Report
0.52
UP
0.51
