ESR-LOGOS REIT - DBS Research 2022-10-27: Positive Rental Reversions Maintained

ESR-LOGOS REIT - Positive Rental Reversions Maintained


Continued strong positive rental reversions of 11.4%.

  • 3Q22 positive rental reversions of +11.4%, contributed mainly from Logistics (+13.4%) and High-Specs (+12.4%) segments.
  • 213,000 sqm of leases were renewed and signed in 3Q22. Positive rental reversions came only from Singapore; rental reversions in Australia were flat.
  • Positive reversions for logistics segment came from several properties while positive reversions for high-specs segment came mainly from 7000 Ang Mo Kio Ave 5.

Slight dip in portfolio occupancies to 92.4%

  • ESR-LOGOS REIT's 3Q22 portfolio occupancies inched down by 1.7ppts q-o-q. Decline in occupancies came mainly from Singapore portfolio where occupancies dipped 2.2ppts, and mainly due to non-renewal of leases by master tenants at two properties:
    • One of the non-renewals was deliberate as ESR-LOGOS REIT is exploring the possibility of redeveloping the asset into a cold storage facility
    • The other non-renewal was StorHub at 160 Kallang Way; currently in negotiations with a replacement tenant
  • Occupancies for Australian portfolio remained stable at 99.5%.
  • ~6.4% of ESR-LOGOS REIT's portfolio leases remain to be renewed in 4Q22. Majority are already in the process of being renewed and this should expect further positive rental reversions going forward and in FY23.

Acquisition of Sakura Distribution Centre to be completed at the end of the month

  • Overwhelming approval from unitholders for maiden entry into Japan with the acquisition of Sakura Distribution Centre. (NPI yield of ~4.35% (including 12-month rental support).
  • Estimated DPU accretion of ~2.9%) Acquisition is expected to be completed on 31 October 2022. This will likely be fully funded by debt; gearing will inch up to ~42.0%

Completed S$132.2m in divestments this year

  • ESR-LOGOS REIT has completed S$132.2m in divestments so far this year. Proceeds used to pare down debt and fund AEIs and also addresses higher gearing with the Sakura Distribution Centre acquisition. ESR-LOGOS REIT will consider divesting up to S$450m of non-core assets (over the next 2 years) to manage gearing

All-in cost of debt inched up to 3.27%

  • ESR-LOGOS REIT's all-in financing costs increased to 3.27% in 3Q22, from 2.97% in 2Q22. Despite 66.6% of loans hedged to fixed rates, the increase in all-in financing costs was likely due to spike in interest rates for floating rate loans.
  • No refinancing requirement in FY22; S$390m loans will be due in FY23. Bulk of loan maturity only in 4Q23.

Our thoughts on ESR-LOGOS REIT

  • Riding on the past few quarters of positive rental reversions, ESR-LOGOS REIT reported another quarter of strong double-digit reversions of +11.4%. We noted that all its property segments reported positive rental reversions, with the strongest reversions coming from its Logistics and High-Specs property segments. However, portfolio occupancies dipped by 1.7ppts q-o-q mainly due to non-renewals at two properties.
  • Similar to peers, ESR-LOGOS REIT’s cost of borrowings reported an uptick to 3.27%. Although the proportion of its debt hedged to fixed rates remained at 66.6%, the spike was likely from floating rate loans. ESR-LOGOS REIT does not have any refinancing requirements for FY22, and the bulk of the refinancing for FY23 will only be due in 4Q23. A total of S$390m in loans will be due in FY23, and this represents approximately 19.6% of ESR-LOGOS REIT’s entire loan book. Given the rising interest rate environment, we will be watching the terms of refinancing closely.
  • We continue to like ESR-LOGOS REIT as it recalibrates its portfolio with the impending completion of the acquisition of Sakura Distribtuion Centre, and further divestments of non-core assets to manage its gearing.
  • Although ESR-LOGOS REIT had previously expected to benefit from lower margins and financing costs following the merger with ARA LOGOS Logistics Trust, the rapid rise in interest rates will lead to higher overall borrowing costs. As such, we have revised our projections and assumed higher interest expenses going forward, leading to a lowering of FY23 and FY24 DPU projections by 2%-3%.
  • Having assumed higher cost of debt and increasing our risk-free rate assumption to 3.5%, we have lowered our target price for ESR-LOGOS REIT to S$0.44. Despite this, ESR-LOGOS REIT's Share Price is currently trading at a very attractive forward yield of slightly more than 9.0%. As such, we will be maintaining our BUY recommendation.

Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @

Dale LAI DBS Group Research | Derek TAN DBS Research | 2022-10-27

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

Price targets by other brokers at ESR-LOGOS REIT Target Prices.
Listing of research reports at ESR-LOGOS REIT Analyst Reports.

Relevant links:
ESR-LOGOS REIT Share Price History,
ESR-LOGOS REIT Announcements,
ESR-LOGOS REIT Dividends & Corporate Actions,
ESR-LOGOS REIT News Articles

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