ESR-REIT
| Morningstar Rating for Stocks | Fair Value | Economic Moat | Capital Allocation |
|---|---|---|---|
| LOCK|$<^r$?b | LOCK|N% | LOCK|>@<!W& |
ESR-Logos REIT Raising Equity To Strengthen Balance Sheet; Lowering FVE to SGD 0.38
We lower our fair value estimate for no-moat ESR-Logos REIT to SGD 0.38 from SGD 0.41 to factor in the impact of its equity fundraising. ESR-Logos REIT is looking to strengthen its balance sheet by raising SGD 150 million via a private placement and another SGD 150 million via a preferential offering. The private placement issue price range is between SGD 0.33 and SGD 0.335, while the preferential offering issue price is based on a discount of SGD 0.005 to the private placement issue price. This translates to an estimated 5% to 6% discount to its Feb. 16 closing price of SGD 0.35. We estimate that the unit base will expand by 14% while the 2023 distribution per unit, or DPU, will be diluted by 7% to SGD 0.025 per unit after accounting for lower interest payment as the capital raised is used to repay maturing debt. This implies a 2023 dividend yield of 6.5%. Overall, we are negative on the equity fundraising given the dilution to unitholders and think that the units are fairly valued at current prices.
