OCBC Investment Research analyst Chu Peng has kept her “buy” call on ESR-LOGOS REIT (E-LOG) J91U but with a lower fair value estimate of 38 cents, down from 42 cents previously.
Chu’s lower fair value estimate factors in the impact of an enlarged unit base E-LOG completed its private placement and preferential offering in February and March respectively.
The analyst has also lowered her distribution per unit (DPU) estimates for FY2023 to FY2027 by 8% to 10%. At the same time, she has lowered her risk-free rate assumption to 3.15% from 3.5% previously.
E-LOG had planned to raise gross proceeds of $300 million to pay off its interim debt. The proceeds will also go towards financing its redevelopments, asset enhancement initiatives (AEIs) and further acquisitions.
E-LOG’s private placement, which was completed on Feb 27, raised the total number of units within the REIT to 7.18 billion units. In its private placement, the REIT had placed 454.5 million units with an issue price of 33 cents per share, which was at the lower end of its indicative range of 33 cents to 33.5 cents.
In addition to the private placement, E-LOG announced a non-renounceable preferential offering where the entitlement ratio is at 64 units per 1,000 existing shares. The issue price for this offering is at 32.5 cents per share.
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“E-LOG is currently trading close to the issue price of 32.5 cents but still offers 24% total return to our fair value estimate with 7.7% dividend yield,” Chu writes, adding that the REIT’s fundamentals “remain healthy”.
“Post the equity fund raising (EFR), E-LOG’s gearing is expected to fall from 41.8% to 38.0%, and further to 32.3% with the EFR and the assumed divestments. Investors could consider taking up the preferential offering to avoid dilution of shares,” she says.
Units in E-LOG closed flat at 33 cents per unit on April 12.
