ESR-REIT Review @ 11 February 2022

Basic Profile & Key Statistics

ESR-REIT invests in Industrial, Business Park and Logistics properties which currently owns 55 properties in Singapore. 

Performance Highlight

Gross revenue, NPI and distributable income increased YoY due to absence of rental rebates, contributions from 46A Tanjong Penjuru and 10% interest in EALP. However, 4Q core DPU decreased by 2.7% YoY due to enlarged unitholder base.

Rental Reversion

Rental reversion is +3% for 4Q and -1.7% for FY21.

Divestment

In November 2021, ESR-REIT has completed the divestment of 11 Serangoon North Avenue 5 and 3C Toh Guan Road Eat. Subsequently in January 2022, ESR-REIT has also completed the divestment for 28 Senoko Road. The divestment of 45 Changi South Avenue 2 is expected to be completed by 1Q 2022.

Asset Enhancement Initiatives

The AEI for 19TS is completed. The manager has secured more than 76% committed occupancy.

AEI for 7000 AMK has commenced and is expected to complete by 3Q 2023. The next AEI is expected for 16 Tai Seng Street. 

Related Parties Shareholding

• REIT sponsor's shareholding is low at 8.668%
• REIT manager's shareholding is slightly low at .902%
• Directors of REIT manager's shareholding is high at 21.055%

Lease Profile

• Occupancy is slightly low at 92%
• WALE is short at 2.7 years
• Highest lease expiry within 5 years is moderate at 26.5% which falls in 2022
• Weighted average land lease expiry is short at 27.12 years

Debt Profile

• Gearing ratio is slightly high at 40%. Include perps, gearing is at 45.1%.
• Cost of debt is high at 3.31%
• Fixed rate debt % is high at 92.1%
• All debts are unsecured debt
• WADM is short at 2.4 years
• Highest debt maturity within 5 years is moderate at 32.5% which falls in 2023
• Interest coverage ratio is low at 3.1 times
• Perpetual securities over debts is slightly high at 11.3%

Diversification Profile

• Top geographical contribution is high at 98.3%
• Top property contribution is low at 15.3%
• Top 5 properties contribution is low at 48.8%
• Top tenant contribution is low at 5.2% 
• Top 10 tenants contribution is low at 30.3%

Key Financial Metrics

• Property yield is high  at 5.6% 
• Management fees over distribution is slightly low at 13% in which unitholders receive S$ 7.69 for every dollar paid 
• Distribution on capital is slightly high at 3.9%
• Distribution margin is moderate at 46.3%

Trends

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

• Slight Uptrend - Interest Coverage Ratio
• Flat - Distribution Margin
• Downtrend - DPU, NAV per Unit, Property Yield, Distribution on Capital

ICR for period 3Q2020 and before (besides 4Q 2019) are estimated to reflect a more closer figure to MAS ICR.

Relative Valuation

• P/NAV - Average for 1y and 3y; Above average for 5y
• Dividend Yield - Average for 1y; Below average for 3y and 5y

Author's Opinion

Favorable	Less Favorable
Diversified Sector	Low REIT Sponsor's Shareholding
High Directors of REIT Manager's Shareholding	Short WALE
High Fixed Rate Debt %	Short Weighted Average Land Lease Expiry
100% Unsecured Debt	High Cost of Debt
Low Top Property &Top 5 Properties Contributions	Short WADM
Low Top Tenant & Top 10 Tenants Contributions	Low Interest Coverage Ratio
High Property Yield	High Top Geographical Contribution
	DPU Downtrend
	NAV per Unit Downtrend
	Property Yield Downtrend
	Distribution on Capital Downtrend

As compared to the previous quarter, gross revenue and NPI have dropped but distributable income and DPU has increased slightly. ESR-REIT is being aggressive in AEI, capital recycling and merger lately. The most current news would be the merger with ARA LOGOS Logistics Trust. ESR-REIT has revised the offer just 1 week before the scheduled EGM. The revised scheme is as below:

The EGM has been deferred to March, the firm date to be announced later. You could refer to my previous post - Updated Theoretical Pegged Price for ALOG + ESR-REIT Merger for the pegged price table.

You could also refer below for more information:

SREITs Dashboard - Detailed information on individual Singapore REIT

SREITs Data - Overview and Detail of Singapore REIT

REIT Analysis - List of previous REIT analysis posts

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Singapore REITs Post Telegram Channel - Join to receive posts for Singapore REITs

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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 and 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.