ESR-LOGOS REIT - Maybank Research 2022-10-06: Steady Progress, New-Economy Play With Low ESG Risk

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ESR-LOGOS REIT (SGX:J91U)

ESR-LOGOS REIT - Steady Progress, New-Economy Play With Low ESG Risk

• ESR-LOGOS REIT scores 53 under our expanded ESG 2.0 methodology, which is above the average of 50.
• ESR-LOGOS REIT has a progressive sustainability framework. We believe improvements in information disclosure and more ambitious long-term targets could help ESR-LOGOS REIT obtain a higher score.

Making steady progress in ESG

• ESR-LOGOS REIT (SGX:J91U) is making steady progress as its Scope 2 GHG emissions, energy and water consumption fell in FY21. We note lower solar power generation in FY21 due to hardware malfunctioning, and expect maintenance to be completed in FY22.
• Female board representation is low at 10% compared to Mapletree Logistics Trust (SGX:M44U)’s 33%, while independent director ratio dropped to 40% in FY21 from 50% in FY20. Improvement in board gender diversity and independence could enhance its “S” and “G” scores.

Ahead of ESG targets

• ESR-LOGOS REIT reduced energy intensity of multi-tenanted buildings (MTBs) by 14% in FY21, against annual reduction target of 1%. We believe more aggressive ESG targets pertaining to energy and water saving could improve the scores.
• Notably, ESR-LOGOS REIT is the only industrial S-REIT setting water certification targets. It targets to certify all MTBs under the PUB Water Efficiency Building (WEB) programme by FY23, and has achieved 94% in end-2021.
  • Under the PUB WEB programme, premises are projected to lower water consumption by ~5% with the help of water efficient fittings and controlled flow rates/flush volumes.

Maintain BUY and target price of S$0.55

• ESR-LOGOS REIT’s all-in cost of debt fell to 2.97% post-merger with ARA LOGOS, and management targets a solid credit rating in 2H22 to further reduce the cost.
• We see S$958.5m debt headroom and S$35.3m divestment gain from 2 JKB supporting ELOG’s acquisition of Sakura Distribution Center in Japan (for S$183.5m). A 50bps increase in cost of borrowing will negatively impact DPU by 0.7%.
• See
  • ESR-LOGOS REIT's Share Price,
  • ESR-LOGOS REIT's Target Price,
  • ESR-LOGOS REIT's Analyst Reports,
  • ESR-LOGOS REIT's Dividend History,
  • ESR-LOGOS REIT's Announcements,
  • ESR-LOGOS REIT's Latest News.
• Maintain BUY recommendation on ESR-LOGOS REIT with target price of S$0.55 (COE: 6.5%, LTG: 2%).

Read also ESG assessment reports of other industrial S-REITs:

• CapitaLand Ascendas REIT - Maybank Research 2022-10-06: Front Runner In The ESG Race Among Industrial S-REITs.
• Mapletree Industrial Trust - Maybank Research 2022-10-06: Improving Fundamentals, Remains Focused On ESG.
• Mapletree Logistics Trust - Maybank Research 2022-10-06: Riding The Renewables Wave ~ Logistics Play With An ESG Touch.

Li Jialin Maybank Research | https://www.maybank-ke.com.sg/ 2022-10-06

SGX Stock Analyst Report BUY MAINTAIN BUY 0.550 SAME 0.550