$ESR-REIT(J91U.SI)$DBS Group Research analysts Dale Lai and Derek Tan have kept a “buy” rating on ESR REIT with a target price of 50 cents.

After ESR REIT’s successful merger with ARA LOGOS Logistics Trust ALOG) in April, the REIT is now the fifth largest industrial Singapore REIT with a total asset base of approximately $5.5 billion but has yet to see a re-rating.

“With large cap industrial Singapore REITs trading at around 20 bps premium over its mid cap peers, we believe that the market has yet to re-rate ESR REIT, despite its ability to access a significant pipeline of assets and support from an enlarged sponsor group,” says Tan and Lai. “In the medium term, as ESR REIT executes on its value-accretive plans, we expect its P/NAV to trade closer to its large cap peers, implying an approximate 18% upside to its share price from current levels.”

At a yield of around 7.4%-7.5%, ESR REIT’s yield is more than 200 basis points (bps) higher than the larger cap industrial Singapore REITs and is attractive, says Lai and Tan. “The manager is executing on an asset repositioning strategy post-merger, which should be value accretive and drive a re-rating in share price, in our view,” they add.

The analysts also note that ESR REIT has an undemanding P/NAV of only 1.1x as well.

For the immediate horizon, ESR REIT will embark on the repositioning of its portfolio with close to $200 million of divestments carried out since FY2021 ended December.

ESR REIT will continue to divest non-core assets and recycle proceeds into higher yielding opportunities. The rejuvenation of its portfolio entails redevelopment projects and AEIs that will drive organic growth in earnings and upside to NAV.

While its peers find it increasingly challenging to make accretive acquisitions given the negative cap rate spreads in most major markets, Lai and Tan believe that ESR REIT can look to its sponsor’s pipeline of approximately US$2.0 billion in the medium term.

“With a substantial pipeline of assets available in Japan and Singapore where cap rate spreads are still conducive, ESR REIT could be one of the few industrial REITs to experience exponential portfolio growth,” Tan and Lai say.

Some risks observed by the analysts include ESR REIT’s relatively high gearing of around 41%, putting it at risk of requiring fund-raising to fund major capex, though a revaluation uplift mid-year could potentially allay such fears.

As at 111.59am, units in $ESR-REIT(J91U.SI)$are trading at $0.405  up by $0.005 or 1.25% at a distribution yield of 7.5%.

@Daily_Discussion

@CaptainTiger

@TigerStars


# 💰 Stocks to watch today?(17 Jun)

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Report

Comment

  • Top
  • Latest
  • ElvisMarner
    ·2022-07-06
    Thanks for your excellent post.
    Reply
    Report
    Fold Replies
    • Stanaasia
      Ya good
      2022-07-11
      Reply
      Report
    • Stanaasia
      [Strong]
      2022-07-11
      Reply
      Report
    • StarLuck
      [ShakeHands]
      2022-07-11
      Reply
      Report
  • YangXH
    ·2022-07-05
    my favorite reits
    Reply
    Report
    Fold Replies
    • Stanaasia
      Mee too
      2022-07-11
      Reply
      Report
    • StarLuck
      [Strong]
      2022-07-11
      Reply
      Report
    • Stanaasia
      Me too
      2022-07-11
      Reply
      Report
  • Universe宇宙
    ·2022-07-06
    грядут новые слияния для некоторых REIT? [Doubt]
    Reply
    Report
    Fold Replies
    • StarLuck
      [Strong]
      2022-07-11
      Reply
      Report
  • Jason1616
    ·2022-07-05
    There r better reits.
    Reply
    Report
    Fold Replies
    • StarLuck
      [Strong]
      2022-07-11
      Reply
      Report
  • Stanaasia
    ·2022-07-11
    Good counter
    Reply
    Report
    Fold Replies
    • StarLuck
      [Smile]
      2022-07-11
      Reply
      Report
  • StarLuck
    ·2022-07-11
    [Strong]
    Reply
    Report
  • views123
    ·2022-07-06
    thanks
    Reply
    Report
    Fold Replies
    • StarLuck
      [Strong]
      2022-07-11
      Reply
      Report
  • CyberGuard
    ·2022-07-05
    [Like]
    Reply
    Report
    Fold Replies
    • StarLuck
      [Smile][Smile]
      2022-07-11
      Reply
      Report
  • JeslinToh
    ·2022-07-05
    Tts good
    Reply
    Report
    Fold Replies
    • StarLuck
      [Strong]
      2022-07-11
      Reply
      Report
  • HLPA
    ·2022-07-05
    k
    Reply
    Report
    Fold Replies
    • StarLuck
      [Strong]
      2022-07-11
      Reply
      Report
  • Earthboii
    ·2022-07-05

    Ok

    Reply
    Report
    Fold Replies
    • StarLuck
      [Strong]
      2022-07-11
      Reply
      Report