DBS Group Research has kept its "buy" call and 38 cents target price on ESR-LOGOS REIT J91U , following news of its divestment of one of its properties.
On Oct 2, the REIT announced it has sold 2 Tuas South Avenue 2 for $53 million. The property has a NLA of 20,192 sqm and is currently master-leased to LHN Group.
"The divestment at a 35.2% premium to valuation is also a welcome sign, especially as interest rates remain high and we understand that there are more industrial assets put on the market for sale," says DBS in its Oct 2 note.
DBS estimates the exit yield at a very attractive at around 4%, especially as interest rates remain high and as there is competition from more assets put up for sale on the market.
"The divestment will also help to reduce EREIT’s lease expiry exposure to single-tenanted buildings, and allow them to continue benefiting from the strong positive rental reversions seen at its high-specs industrial and logistics spaces," adds DBS.
If proceeds are used to repay loans, gearing could improve by around 0.8% to 32.8% - assuming divestment proceeds from earlier announced divestments are also utilised to repay loans. The impact to DPU will be minimal as all-in borrowing costs are also close to 4%.
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"Overall, we see this as a positive for EREIT as they continue to carry out their portfolio rejuvenation and repositioning," says DBS, adding that including this divestment, EREIT would have completed around $400 million in divestments this year, on target of their earlier announced plans to divest up to $450 million.
With gearing brought down to 33%, the REIT will have ample headroom to embark on their planned AEIs and redevelopments, as well as to embark on further accretive acquisitions.
With less than $200 million that will be due for refinancing in FY24, ESR-LOGOS REIT will only have around 10% of all its loans due for refinancing next year, says DBS.
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"Following the unexpected trading volumes and share price weakness last week, this divestment reaffirms the REIT’s ability to continue on its portfolio rejuvenation and repositioning exercise," reasons DBS, which is keeping its "buy" call and 38 cents target prices, and estimating that at current levels, the REIT is generating a forward yield of around 9%.
ESR-LOGOS REIT changed hands at 27 cents as at 1.41 pm, down 3.57%.
