SINGAPORE (June 19): CGS-CIMB Research is maintaining its forecasts on ESR-REIT “pending greater clarity” on details of an equity fund raising to raise up to $150 million.
The brokerage is keeping its “add” recommendation on ESR-REIT with an unchanged target price of 60 cents.
The manager of ESR-REIT earlier this week announced the proposed equity fund raising exercise.
See: ESR-REIT proposes equity fund raising to raise gross proceeds of up to $150 mil to finance property acquisition, AEIs
Units in the trust took a tumble on Tuesday after the manager announced that the price of some 194.2 million new units to be issued under a private placement has been fixed at 51.5 cents per unit.
On top of the private placement, ESR-REIT also has plans for a non-renounceable preferential offering of new units to existing unitholders.
The manager says it has “no intention” of raising aggregate gross proceeds of more than $150 million through the equity fund raising, which comprises the private placement and the preferential offering.
Around $44.4 million of the gross proceeds will be used for the acquisition of a 6-storey ramp-up general warehouse with a gross floor area of close to 1 million sq ft at 48 Pandan Road, in a joint venture with Poh Tiong Choon Logistics (PTC).
ESR-REIT holds a 49% interest in the partnership known as PTC Logistics Hub, while PTC holds the remaining 51% stake.
The lease term for the property, which serves as PTC’s corporate headquarters, is for 10 years, with fixed rental escalations of 1.5% annually.
Another $26.2 million of the gross proceeds will be used to partially finance proposed asset enhancement initiatives (AEIs) at 7000 Ang Mo Kio Avenue 5 and UE BizHub EAST.
Meanwhile, $26.3 million of the gross proceeds will be used for debt repayment.
See: ESR-REIT to issue 194 mil new units at 51.5 cents in private placement
“Based on the pro-forma financial effects from ESR-REIT assuming the transactions were completed on Jan 1, 2019, annualised DPU would have declined from 4.028 cents to 3.984 cents,” says lead analyst Lock Mun Yee in a report on Monday.
“If the transaction was completed on Mar 31, 2019, NAV would have increased from 46.8 cents to 47.0 cents, and aggregate leverage would have declined from 42.0% to 40.3%,” she adds.
CGS-CIMB says it will factor in the impact of the transactions and update its forecasts after the private placement has been completed and the details of the preferential offering have been determined.
As at 11.51am on Wednesday, units of ESR-REIT are trading 0.9% higher at 53.5 cents. This implies an estimated price-to-earnings (PE) ratio of 15.5 times and a dividend yield of 7.4% for FY20F.
