ESR-REIT Analysis @ 6 November 2020

Basic Profile & Key Statistics

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

Quarter Performance Review

Gross revenue and NPI decreased by 8.2% YoY and 10.8% YoY respectively. Distributable income and DPU from operations dropped by 15.2% YoY and 19% Yoy respectively. The drop is due to lease conversion from single to multi-tenant for certain properties as well as rental rebate given to tenants.

YTD rental reversion is at -0.2%, which is improved from the previous quarter of -4.3% 

There are AEI works for UE BizHub East and 19 Tai Seng Avenue which both are expected to complete in 1Q 2021 and 2H 2021 respectively. 

Lease Profile

Occupancy is slightly low at 90.8%. WALE is short at 3 years where the highest lease expiry of 23.9% falls in 2022. Weighted average land lease expiry (by GRI) is short at 28.59 years.

Debt Profile

Gearing ratio is high at 41.6%. Cost of debt is high at 3.5% with 100% unsecured debt. Fixed rate debt % is slightly high at 88%. Interest cover ratio has improved to from 3.4 times to 3.6 times. WADE is short at 2.5 years where the highest debt maturity of 32.8% falls in 2023. 

Diversification Profile

Top property contribution, top tenant and top 10 tenants contributions are low at 15%, 5.1% and 30.8% respectively. 

Key Financial Metrics

Property yield is slightly high at 5.8%. Management fee is moderate in which unitholders receive S$ 6.76 for every dollar paid to the manager. Distribution on capital is high at 3.7%. Distribution margin is low at 41.4%. 5.4% of past 4 quarters DPU is from distribution from asset disposal. If include retention, management fees over distribution, distribution on capital, distribution margin and distribution from asset disposal would be 13.9%, 3.9%, 42.8% and 5.1% respectively. Note that for this year, ESR-REIT never provides any distribution from asset disposal.

Trends

ESR-REIT and Viva Industrial Trust merger was completed in 4Q 2018, so let's only look after this period.

Slightly Downtrend - Interest Cover Ratio, Property Yield, Distribution Margin (include retention)

Downtrend - DPU, NAV per Unit

Relative Valuation

i) Average Dividend Yield  - Average yield at 7.31%,  apply the past 4 quarters DPU of 2.96 cents will get S$ 0.405. Include retention, DPU would be 3.058, which translate into S$ 0.42

ii) Average Price/NAV - Average value at 0.96, apply the latest NAV of S$ 0.41 will get S$ 0.395.

Author's Opinion

Favorable	Less Favorable
Diversified Sector	Short WALE
Well Spread Lease Expiry	Short Weighted Average Land Lease Expiry
100% Unsecured Debt	High Gearing Ratio
Low Top Property Contribution	High Cost of Debt
Low Top Tenant & Top 10 Tenants Contribution	Short WADE
High Distribution on Capital	High Top Geographical Contribution
	Low Distribution Margin
	DPU Downtrend
	NAV per Unit Downtrend

The are some improvement for gross revenue, NPI and interest cover ratio as compared to the previous quarter. However, industrial outlook remain challenging especially for mid and small REIT players. For merger with Sabana REIT, management has release detail on the indicative timeline as below:

ESR has been growing in size through acquisitions and mergers which they have mergerd with VIVA Industrial Trust in 4Q 2018, and now in progress with Sabana REIT. Likely this merger spree won't end with Sabana, so which mid to small cap REIT would be ESR-REIT next target? Many is speculating the next would be AIMS APAC REIT.

For more information, you could refer to:

SREITs Dashboard - Detailed information on individual Singapore REIT

SREITs Data - Overview of Singapore REIT

REIT Analysis - List of previous REIT analysis posts

REIT-TIREMENT Patreon - Support this blog as a Patron and get SREITs Dashboard PDF

REIT Investing Community - Facebook Group where members share and discuss REIT topic

*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 as well as 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.