ESR-LOGOS REIT - DBS Research 2022-10-14: Into The Land Of The Rising Sun; Portfolio Rejuvenation To Drive Growth

• ESR-LOGOS REIT (SGX:J91U) just received an overwhelming approval (EGM was just held on 12 October 2022) for the proposed acquisition of its ESR Sakura Distribution Centre for S$183.5m (including the 12-month rental support) from its sponsor.
  • - Read this at SGinvestors.io -
  • The 25% vacancy was due to a tenant that vacated the property to consolidate its operations into its own built-to-suit facility in May 2022. Prior to this, the property has always been fully occupied over the past five years.
  • Given the strong demand-supply dynamics of the logistics market in the Chiba Prefecture, ESR-LOGOS REIT is confident of backfilling these vacancies in the near term.
• - Read this at SGinvestors.io -
• Given how the share price of S-REITs have corrected in recent weeks, we believe ESR-LOGOS REIT will not proceed with the alternative scenario that requires equity fundraising to raise ~S$75m and lead to significant NAV dilution.
• With the debt-funded option, the acquisition is projected to generate a ~2.9% accretion to ESR-LOGOS REIT's DPU. Concurrently, gearing is expected to inch up to ~42%, and we believe that it can be brought down gradually with the future divestment of non-core and lower yielding assets, which will be value accretive to ESR-LOGOS REIT.
• Since its successful merger with ARA LOGOS Logistics Trust in April 2022, ESR-LOGOS REIT has already divested three lower yielding assets to raise more than S$132m. It has also identified several other non-core assets that they could potentially divest to raise a further S$400m.

Tackling the two main bugbears

Decaying land tenure of ESR-LOGOS REIT’s portfolio.

• Read more at SGinvestors.io.

Dale LAI DBS Group Research | Derek TAN DBS Research | https://www.dbs.com/insightsdirect/ 2022-10-14 SGinvestors.io

---