ESR-LOGOS REIT - OCBC Investment 2022-07-28: Maiden Results Post-Merger


ESR-LOGOS REIT - Maiden Results Post-Merger

  • ESR-LOGOS REIT's 1H22 DPU fell 6% y-o-y on enlarged share base.
  • 63% of portfolio exposure underpinned by New Economy assets.
  • Rejuvenating portfolio to drive future growth.

ESR-LOGOS REIT's 1H22 DPU met our expectations

  • ESR-LOGOS REIT (SGX:J91U)'s 1H22 revenue and net property income increased by 23.2% y-o-y and 18.2% y-o-y to S$147.7m and S$102.8m respectively, driven by contributions from ARA Logos Logistics Trust (ALOG) following the completion of the merger in Apr 2022, partly offset by higher electricity costs.
  • 1H22 DPU came in-line with our expectations at 1.460 cents (-6.0% y-o-y) due to an enlarged share base and higher utilities cost, representing 50% of our initial forecasts.
  • ESR-LOGOS REIT will change the frequency of its distributions to unitholders from quarterly to half-yearly basis with effect from 2H22.

Mitigating cost pressures

  • To mitigate the impact of inflationary pressure on costs, ESR-LOGOS REIT has converted majority of its portfolio to Singapore Power (SP) tariff rates. With effect from 1 Jul 2022, more than 90% of the portfolio’s utilities expenses will be pass through to the tenants. In addition, ESR-LOGOS REIT will progressively roll out service charge increases at an average of 15% for selected assets.
  • 66.2% of ESR-LOGOS REIT’s borrowings is hedged on fixed rate. For every 25 bps increase in interest rates, 2Q22 DPU will decrease by 0.7%. Management is comfortable with the current hedge ratio and has no intention to increase it in the near-term as it is more costly to do so.

Positive rental reversions at 11.4%

  • ESR-LOGOS REIT's portfolio occupancy improved by 0.4 percentage points (ppt) q-o-q to 94.1% in 2Q22 (Singapore: 92.6% and Australia: 99.4%, both are above the industry averages of 89.8% and 99.0% respectively).
  • Rental reversions for 1H22 came in at 11.4% driven by positive reversions across its segments (logistics: +15.4%, general industrial: +13.1%, business park: 3% and high-specs industrial: +2.4%). Management expects full-year rental reversion of 6- 7%, supported by strong demand for logistics and general industrial segments on the back of secular trends.
  • A total of 196k square meters (sqm) of space was leased in 1H22 driven by the logistics, manufacturing and electronics sectors.

AEIs and acquisitions remain the key growth strategy

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2022-07-28
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