ESR-LOGOS REIT (SGX:J91U)
ESR-LOGOS REIT - Paving The Way Ahead
- Merger of ESR-REIT with ARA LOGOS Logistics Trust was completed.
- Renamed as ESR-LOGOS REIT (SGX:J91U).
- Exposure to New Economy properties increases to 66%.
A newly formed REIT
- The merger of ESR-REIT (SGX:J91U) with ARA LOGOS Logistics Trust (SGX:K2LU) completed on 28 Apr 2022. ARA LOGOS Logistics Trust was subsequently delisted from the SGX on 5 May 2022. The newly formed REIT will be renamed as ESR-LOGOS REIT (SGX:J91U).
- For the first 100 days post-merger, ESR-LOGOS REIT will focus on integration, asset business plan i.e. divestments/asset enhancement initiatives (AEIs) opportunities, as well as evaluation of acquisitions and redevelopment potential.
- Factoring the impact of the merger, we reduce our DPU estimates for FY22-26 by 0.8%-4.3% due to enlarged unit base and higher utility costs. After adjustments, our fair value estimate for ESR-LOGOS REIT decreases marginally from S$0.52 to S$0.50.
Leveraging growth opportunities in New Economy properties
- Post-merger, ESR-LOGOS REIT will increase its income diversification to Australia to 13% by rental income while 87% is derived from Singapore. With the addition of ARA LOGOS Logistics Trust’s portfolio, ESR-LOGOS REIT’s exposure to New Economy asset will increase from 47% to 66%. This provides ESR-LOGOS REIT outsized exposure to benefit from the largest secular growth opportunity in Asia.
- With an enlarged scale, ESR-LOGOS REIT could tap on its sponsor’s strong network and rich pipeline of US$2b of visible and executable New Economy assets to undertake sizeable acquisitions. Future acquisitions are likely to focus on freehold assets in Singapore, Australia, and Japan.
1Q22 DPU fell 9.6% y-o-y due to enlarged unit base
- ESR-LOGOS REIT’s 1Q22 DPU rose 0.3% q-o-q but was down 9.6% y-o-y to S$0.00723, primarily due to an enlarged share base, in-line with our expectations. 1Q22 net property income fell 10.4% y-o-y to S$39.5m, weighed down by higher utilities expenses.
- We understand that utilities cost made up ~25% of the REIT’s total operating cost in FY21, but is expected to increase to 35% in FY22.
- ESR-LOGOS REIT's portfolio occupancy remained healthy at 91.5% in 1Q22, supported by healthy demand and robust positive rental reversions of 3.1% from the logistics/warehouse, general industrial, and business park sectors.
- Retail space in the business park remained weak, registering negative rental reversions in 1Q22, but is likely to improve as the workforce gradually returns.
- See
Chu Peng
OCBC Investment Research
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https://www.iocbc.com/
2022-05-11
SGX Stock
Analyst Report
0.50
DOWN
0.52
