ESR-REIT’s 2021 Results in Line; Merger With ALOG to Drive Future Growth

ESR-REIT’s full-year 2021 results were in line with our expectations. Net property income increased by 5.5% year over year to SGD 173.3 million on the back of a 5.0% year-over-year increase on revenue to SGD 241.3 million. The increase is mainly attributable to 1) the absence of provision for coronavirus rental rebates to tenants in FY 2021; 2) contribution from 46A Tanjong Penjuru, which was acquired on June 29; and 3) the leasing of certain properties during the year. Together with a lower cost of debt, full-year distributable income increased 15.4% year over year to SGD 114.4 million while DPU increased at a slower 6.7% to SGD 0.02987 due to an enlarged unit base from its equity fundraising exercise in May 2021 and August 2021. We maintain our fair value estimate of ESR-REIT at SGD 0.49, after rolling over our estimates and updating our model. Our no moat and stable moat trend ratings remain unchanged. We think the units are slightly undervalued at the current price, with near-term growth driven by the merger with ARA Logos Logistics Trust, or ALOG.