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Friday, November 05, 2021

ESR-REIT Review @ 5 November 2021

Basic Profile & Key Statistics

ESR-REIT invests in Industrial, Business Park and Logistics properties which currently owns 57 properties in Singapore. 

Performance Highlight

Gross revenue, NPI, distributable income and DPU increased YoY due to absense of rental rebates, contributions from 46A Tanjong Penjuru and 10% interest in EALP.

YTD rental reversion is at -2.2%

ESR has divested 45 Changi South Avenue 2 at 7.8% premium to fair value. AEI at 19TS is expected to be completed by 4Q 2021 while AEI for 7000 AMK is expected to start in Oct and completed by 3Q 2023. 

On 15th October, ESR-REIT announced the proposed merger with ARA LOGOS Logistics Trust (ALOG) to form ESR-LOGOS REIT.

This merger is expected to be DPU accretive to unitholders.

As per the previous ALOG review post, the main benefits are larger in size for sponsor and REIT itself, more acquisition pipeline and a more diversified portfolio. 

Related Parties Shareholding

  • REIT sponsor's shareholding is low at 8.731%
  • REIT manager's shareholding is moderate at 0.826%
  • Directors of REIT manager's shareholding is high at 21.125%

Lease Profile

  • Occupancy is slightly low at 91.2%
  • WALE is short at 2.9 years
  • Highest lease expiry within 5 years is moderate at 25.3% which falls in 2023
  • Weighted average land lease expiry is short at 27.37 years

Debt Profile

  • Gearing ratio is slightly high at 41.3%. Include perps, gearing is at 46.3%.
  • Cost of debt is high at 3.41%
  • Fixed rate debt % is high at 88.1%
  • All debts are unsecured debt
  • WADM is short at 2.6 years
  • Highest debt maturity within 5 years is moderate at 31.1% which falls in 2023
  • Interest coverage ratio is low at 2.9 times
  • Perpetual securities over debts is slightly high at 10.9%

Diversification Profile

  • Top geographical contribution is high at 98.9%
  • Top property contribution is low at 15.3%
  • Top 5 properties contribution is low at 48.8%
  • Top tenant contribution is low at 5.2% 
  • Top 10 tenants contribution is low at 30.4%

Key Financial Metrics

  • Property yield is high  at 5.8% 
  • Management fees over distribution is slightly low at 12.5% in which unitholders receive S$ 8 for every dollar paid 
  • Distribution on capital is slightly high at 4%
  • Distribution margin is slightly low at 47.8%

Trends


As ESR-REIT and Viva Industrial Trust merger was completed in 4Q 2018, so let's focus on after this period.
  • Slight Uptrend - Distribution Margin
  • Flat - Interest Coverage Ratio
  • Slight Downtrend - Property Yield
  • Downtrend - DPU, NAV per Unit, Distribution on Capital
** The interest coverage ratio has been modified to MAS ICR. ICR for period 3Q2020 and before (besides 4Q 2019) are estimated to reflect a more closer figure to MAS ICR.

Relative Valuation

  • P/NAV - Above +1SD for 1y, 3y and 5y
  • Dividend Yield - Below -1SD for 1y, 3y and 5y

Author's Opinion

FavorableLess Favorable
Diversified SectorLow REIT Sponsor's Shareholding
High Directors of REIT Manager's Shareholding Short WALE
100% Unsecured DebtShort Weighted Average Land Lease Expiry
Low Top Property &Top 5 Properties ContributionsHigh Cost of Debt
Low Top Tenant & Top 10 Tenants ContributionsShort WADM
High Property YieldLow Interest Coverage Ratio
 High Top Geographical Contribution
 DPU Downtrend
 NAV per Unit Downtrend
 Distribution on Capital Downtrend

The gross revenue, NPI and distributable income is increased as compared to the previous quarter, however, the core DPU has decreased due to enlarged unitholder base. For the merger with ALOG, below is the indicative timeline:


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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee accuracy, completeness, and reliability. It should not be taken as financial advice or a statement of fact. I shall not be held liable for errors, omissions and loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.

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