ESR-Logos REIT Earnings: Portfolio Rejuvenation Underway With Divestment of Noncore Assets

ESR-Logos REIT’s first half-2023 net property income grew 37% year on year on the back of a 33.3% year-on-year increase in revenue, in line with our expectations. The growth was driven by the merger with ARA Logos Trust in April 2022 and the acquisition of ESR Sakura Distribution Centre in October 2022. Distribution per unit, or DPU, fell 5.6% year on year to SGD 0.01378 due to an enlarged unit base from the equity fund raising exercise completed in February 2023 and April 2023. Nonetheless, this was above our expectations due to the use of the prior year’s capital gains to top up distributions. We updated our model to factor in the divestments and distribution top ups and expect the trust to achieve a 2023 DPU of SGD 0.0264 (from 0.025). This implies a 2023 dividend yield of 7.7% based on the trust’s last closing price of SGD 0.345. We think the trust is fairly valued currently and encourage investors to wait for a better entry point.