Company Reports

We will discontinue analyst coverage of ESR-Logos REIT on or about April 12, 2024. We provide analyst research and ratings on over 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

ESR Logos REIT’s second-half 2023 performance was in line with our expectations. Net property income fell 6.5% year on year due to the loss of income from the divested assets and the strengthening of the Singapore dollar. Meanwhile, distribution per unit, or DPU, fell at a steeper rate of 23% year on year due to higher borrowing costs and an enlarged unit base. After two consecutive years of double-digit positive rental reversions, management turned slightly cautious for 2024, guiding for positive rental reversions within the range of 7% to 9%. In particular, management thinks that its business park assets (making up less than 20% of its portfolio) are likely to post lower rental reversion growth. Management also shared that maintenance cost may be a slight concern in 2024 due to higher labor costs. Nevertheless, we expect the trust’s earnings to remain stable in 2024, underpinned by similar occupancy rates as 2023 and additional contributions from its completed asset enhancement initiatives. After rolling our model and updating our assumptions, we retain our fair value estimate of SGD 0.35. We think the trust is undervalued currently and trades at an attractive 2024 dividend yield of 8.4% based on its last closing price of SGD 0.31.

ESR-Logos REIT primarily invests in income producing industrial and business park assets across Singapore. Most of the trust’s portfolio is in strategic locations with good access to transportation and within key industrial zones. Following a change in the major shareholder of its manager in 2017, a new management team was appointed and since then, the manager has grown the trust’s assets under management and distribution per unit by using a mixture of active lease management, asset enhancement initiatives, or AEIs and merger and acquisitions, or M&A.

We lowered our fair value estimate for ESR-Logos REIT to SGD 0.35 from SGD 0.38 after a slightly disappointing third-quarter business update. The trust’s portfolio occupancy rate declined to 90.3% this quarter from 92.9% in the previous quarter because of the addition of 7002 Ang Mo Kio Ave. after the completion of its asset enhancement initiative; the planned redevelopment for 2 Fishery Port Road; and a pretermination of a lease at 46A Tanjong Penjuru. This was below our expectations, as we have modeled an average portfolio occupancy rate of 92.9% for 2023 with the assumption that the trust’s Singapore office portfolio will achieve an average occupancy rate of 90% for 2023. We update our model to revise our blended occupancy rates slightly lower by 1.5 percentage points across the forecast period, as well as the impact of the weaker Australian dollar against the Singapore dollar. Consequently, our fiscal 2023, 2024, and 2025 distribution per unit estimate is lowered by 1.3%, 5.4%, and 4.9% respectively. Based on its previous closing price of SGD 0.25, we think the trust is undervalued as it trades at a 2024 distribution yield of 9.5%.

ESR-Logos REIT primarily invests in income producing industrial and business park assets across Singapore. Most of the trust’s portfolio is in strategic locations with good access to transportation and within key industrial zones. Following a change in the major shareholder of its manager in 2017, a new management team was appointed and since then, the manager has grown the trust’s assets under management and distribution per unit by using a mixture of active lease management, asset enhancement initiatives, or AEIs and merger and acquisitions, or M&A.

Sabana REIT’s unitholders have voted to remove ESR Group as its manager and internalize the REIT management function. This move is unprecedented in Singapore, but we think it has positive implications for the industry. This event occurred because activist investor Quarz Capital led the push. As ESR Group holds around 21% of Sabana REIT compared with Quarz Capital’s 14%, ESR Group only held a slight advantage going into the vote. Ultimately, we think ESR Group lost the vote because of concerns about potential conflicts of interest—ESR Group is the sponsor of more than one industrial REIT in Singapore—and the perception that Sabana REIT has underperformed its peers due to poor management by ESR Group.

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.

ESR-Logos REIT primarily invests in income producing industrial and business park assets across Singapore. Most of the trust’s portfolio is in strategic locations with good access to transportation and within key industrial zones. Following a change in the major shareholder of its manager in 2017, a new management team was appointed and since then, the manager has grown the trust’s assets under management and distribution per unit by using a mixture of active lease management, asset enhancement initiatives, or AEIs and merger and acquisitions, or M&A.

We retain our fair value estimate of SGD 0.38 per unit for ESR-Logos REIT following an in-line business update. First-quarter 2023 net property income grew 78.2% year on year on the back of a 63.9% year-on-year increase in revenue due to the merger with ARA Logos Trust in April 2022. Portfolio occupancy rate declined slightly to 92.1% this quarter from 92.7% in the previous quarter due to a nonrenewal of a general industrial tenant in Singapore. This was slightly below our expectation as we have modeled an average portfolio occupancy rate of 94.3% for 2023 with the assumption that the trust’s Singapore office portfolio will improve its occupancy rate to an average of 92% for 2023 as compared with 91.3% registered in 2022. Nevertheless, we think that this is just a transitional vacancy and expect occupancy rates for its Singapore industrial properties to pick up in the coming quarters. Rental reversion numbers continue to come in strong for the trust with a positive 7.3% rental reversion. As the trust’s portfolio passing rent remains below market levels, management expects to continue to deliver positive rental reversions for upcoming expiries.

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.

ESR-Logos REIT primarily invests in income producing industrial and business park assets across Singapore. Most of the trust’s portfolio is in strategic locations with good access to transportation and within key industrial zones. Following a change in the major shareholder of its manager in 2017, a new management team was appointed and since then, the manager has grown the trust’s assets under management and distribution per unit by using a mixture of active lease management, asset enhancement initiatives, or AEIs and merger and acquisitions, or M&A.

The merger with ARA Logos Trust in April 2022 drove ESR-Logos REIT’s 2022 net property income higher by 41% year on year to SGD 244 million on the back of a 42% increase in revenue. Despite higher borrowing costs due to the rising interest-rate environment, the amount available for distribution rose 54.8% year on year to SGD 177 million. This is due to distribution top-ups amounting to SGD 29.5 million, and income from its strategic investment in the ESR Australia Logistics Partnership and two property funds that were previously held by ARA Logos Trust. Consequently, the trust delivered an in-line distribution per unit of SGD 0.03, implying a 2022 distribution yield of 7.9% based on current prices. However, the weaker leasing sentiment for industrial and logistics spaces, and lower income ahead following its asset divestment, led us to cut our revenue growth assumptions and fair value estimate to SGD 0.41 per unit from SGD 0.48. While the trust still trades at an attractive 2023 distribution yield of 7.1%, we encourage investors to wait for a better entry point given the challenging outlook.

ESR-Logos REIT primarily invests in income producing industrial and business park assets across Singapore. Most of the trust’s portfolio is in strategic locations with good access to transportation and within key industrial zones. Following a change in the major shareholder of its manager in 2017, a new management team was appointed and since then, the manager has grown the trust’s assets under management and distribution per unit by using a mixture of active lease management, asset enhancement initiatives, or AEIs and merger and acquisitions, or M&A.

ESR-Logos REIT delivered a strong third-quarter 2022 performance, with net property income jumping 59.2% year on year to SGD 69.9 million. This was largely within our expectations given the merger with ARA Logos Trust in April 2022. Other positive takeaways include another quarter of double-digit positive rental reversion of 11.4%. Notably, the trust secured the renewal of one of its top 10 tenants, Ams-Osram Asia Pacific, at a positive 12.9% rental reversion. However, portfolio occupancy declined slightly to 92.4% this quarter from 94.1% last quarter due to declining occupancy rates for its Singapore portfolio. That said, we noted that the trust’s Singapore portfolio’s occupancy of 90.4% remained above the market average occupancy rate of 90.0% (as reported by Jurong Town Council). We leave our fair value estimate of SGD 0.48 unchanged. ESR-Logos remains our preferred pick for industrial REITs as it is trading at an attractive 2023 distribution yield of 9% currently. This compares attractively against other industrial peers who are trading at 6%-6.75% 2023 distribution yields. In our view, ESR-Logos’ Singapore-centric portfolio would shield it from currency exchange risk, and we believe it provides better risk adjusted returns at the current price.

No-moat ESR-Logos REIT (formerly known as ESR-REIT), had second-quarter 2022 results with plenty of positive takeaways. The biggest highlight is the impressive double-digit positive rental reversion of 14.3%, driven by its logistics and general industrial assets, which clocked a positive 22.4% and 18.1%, respectively. In lieu of the strong leasing performance, management has upgraded their guidance to a positive 6% to 7% rental reversion from the previous positive 2% to 3% range. There is further good news on the net property income, or NPI, margin front where more than 90% of the portfolio utilities expense will be on a pass-through cost recovery basis from the second half of 2022.

ESR-Logos REIT primarily invests in income producing industrial and business park assets across Singapore. Most of the trust’s portfolio is in strategic locations with good access to transportation and within key industrial zones. Following a change in the major shareholder of its manager in 2017, a new management team was appointed and since then, the manager has grown the trust’s assets under management and distribution per unit by using a mixture of active lease management, asset enhancement initiatives, or AEIs and merger and acquisitions, or M&A.

ESR-REIT’s first-quarter 2022 results came in below our expectations with net property income, or NPI decreasing 10.4% year over year to SGD 39.5 million. This is mainly driven by higher cost of utilities at 7000 AMK that had its electricity cost tripled when its previous rate expired. As 7000 AMK caters to data center tenants, it makes up more than half of ESR-REIT’s utility cost. Moving forward, management estimates a further SGD 3 million impact on both of its third quarter 2022 and fourth quarter 2022 earnings and expects its total utility cost to make up 35% of its total operating expenses, up 10 percentage-points from last year. Excluding a one-off SGD 2.5 million distribution top up, amount available for distribution declined at a slower 6.6% year over year to SGD 26.8 million due to lower borrowing cost and contribution from ESR-REIT’s 10% interest in ESR Australia Logistics Partnership. Distribution per unit, or DPU fell at a faster 9.6% year over year to SGD 0.00723 due to an enlarged unit base from the equity fund raising exercises in May 2021 and August 2021. After updating our model to reflect a tighter NPI margin driven by the rising utility cost on both ESR-REIT’s current portfolio of assets and ARA Logos Logistics Trust, or ALOG’s Singapore properties, our estimated fiscal 2022 DPU dropped by 10.5% to SGD 0.0273, while our fair value estimate is lowered to SGD 0.46 from SGD 0.49. We think that the trust is slightly undervalued at current prices as it trades at an attractive forward dividend yield of 6.7% and we expect its merger with ALOG to drive near term growth.

ESR-REIT primarily invests in income producing industrial and business park assets across Singapore. Most of the trust’s portfolio is in strategic locations with good access to transportation and within key industrial zones. The trust was formerly known as Cambridge Industrial Trust and was renamed to ESR-REIT in 2017 following a change in the major shareholder of its manager. A new management team was subsequently appointed and since then, the manager has grown the trust’s assets under management and distribution per unit by using a mixture of active lease management, asset enhancement initiatives, or AEIs and merger and acquisitions, or M&A.

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.

ESR-REIT is a Singapore-focused REIT that invests primarily in industrial properties and business space. In 2018, it merged with Viva Industrial Trust, which focuses on business parks, resulting in an increase in exposure to business parks. Its portfolio consists of 57 properties, with a valuation of more than SGD 3 billion. Property types include business parks, general industrial, logistics and warehouse, and high specifications industrial properties.