ESR-LOGOS REIT (SGX:J91U)
ESR-LOGOS REIT - A Newer New-Economy Play; Growth On A New Lease
- ESR-LOGOS REIT (SGX:J91U) has emerged from its merger with ARA LOGOS Logistics Trust (SGX:K2LU) as one of the top 10 S-REITs by free float, with higher contributions from new-economy AUM.
- We see visible growth drivers from:
- quality AUM growth from new-economy assets;
- stronger fundamentals and growth in Australia;
- visible sponsor pipeline, supported by added debt headroom;
- dividend yield readjustment to match up to industrial peers.
- ESR-LOGOS REIT's valuations are undemanding at 7.4% FY23E yield, and 0.6% DPU growth.
New-economy assets underpin growth outlook
- ESR-LOGOS REIT has S$5.5b AUM post-merger (vs. S$3.3b), boosted by newly added new-economy assets. We see stronger rental income from new-economy assets (~63% vs 47% of effective gross rent pre-merger) due to pent-up demand caused by supply chain disruptions and relocation post-COVID recovery, and rising e-commerce.
- The addition of mature assets further increases occupancy (to 94.1% in 1H22 from 92% in 4Q21). We expect more functional upgrades from asset enhancement initiatives (AEI) to ride on the rental growth momentum.
Diversified footprint in developed markets
- The S$2.2b additional assets are in good locations in Singapore and Australia, which would help ESR-LOGOS REIT gain a stronger foothold in key Australian markets. We expect robust contributions from the Australia portfolio due to the strong fundamentals, underpinned by historical low occupancy.
- We see room for revaluation gains on the back of cap rates compression.
Robust balance sheet, growth backed by sponsor
- Post-merger with ARA LOGOS Logistics Trust, ESR-LOGOS REIT's all-in cost of debt fell to 2.97% as of 1H22, and management targets a solid credit rating in 2H22 to further reduce the cost, given its larger AUM. A further 50 bps increase in cost of borrowings will negatively impact DPU by 0.7%.
- We see ESR-LOGOS REIT's S$958.5m debt headroom supporting acquisitions from its sponsor’s visible pipeline in Japan and Australia, which would provide tailwinds for further AUM growth.
- Risks are: higher interest rates, high inflation, and macro uncertainties.
- See
- We reinitiate coverage on ESR-LOGOS REIT with a BUY rating with S$0.55 target price (COE: 6.5%, LTG: 2%), suggesting 42% upside. Our DDM-based valuation estimates a DPU of S$0.0299 and S$0.0301 for FY22 and FY23 respectively, implying a distribution yield of 7.4%. This translates to 1.36x P/BV.
- Continue to read the 42-page report attached below for complete analysis on ESR-LOGOS REIT.
Li Jialin
Maybank Research
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https://www.maybank-ke.com.sg/
2022-08-24
SGX Stock
Analyst Report
0.55
SAME
0.55
