Analysts at CGS-CIMB Research and DBS Group Research have kept their “add” and “buy” calls on ESR-LOGOS REIT (E-LOG) J91U following the REIT’s 1HFY2023 ended June results announcement.
For the period, E-LOG posted DPU of 1.376 cents, down 5.6% y-o-y due to an enlarged units base post-merger as well as a $300 million equity fund raising exercise. The DPU is slightly above CGS-CIMB’s forecast at 52.9%, CGS-CIMB analysts Lock Mun Yee and Natalie Ong note.
E-LOG’s portfolio occupancy increased 92.9% q-o-q in 1HFY2023. The REIT recorded positive rental reversion of 11.6% during the period, mainly from its Singapore lease renewals. “While management continues to be upbeat on its portfolio rental reversions, the slower macro outlook could temper the quantum of increment for the rest of FY2023, in our view,” Lock and Ong say.
So far in FY2023, about $350 million in investments have been announced by E-LOG. The trust is still looking at another $150 million in divestments of non-core assets in 2HFY2023. With the $350 million in divestments expected to complete in 2HFY2023, DBS anticipates a 4.5% downside in DPUs due to the absence in income.
“The recently announced redevelopment of ALOG Cold Centre will also lead to a further absence in FY2024. Despite this, there will be significant savings in borrowing costs as the bulk of the proceeds will be used to repay debt,” analysts Dale Lai and Derek Tan highlight.
Additionally, E-LOG has distributed $17.5 million in capital gains in 1HFY2023, and will continue to tap on capital gains distribution to account for the transitional absence of income from divestments and ongoing redevelopments.
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As such, DBS have revised its projections to account for the portfolio “reset” in 2HFY2023 as E-LOG continues to divest non-core assets and work on further redevelopment and asset enhancement initiative (AEI) projects in order to rejuvenate its portfolio.
“Although there will be some near-term pressure to earnings due to the absence of income, E-LOG is now in a financially stronger position with ample debt headroom to seize accretive acquisitions and portfolio improvement initiatives,” the analysts add.
Due to the enlarged unit base and divestments, DBS have revised their estimates for FY2023 and FY2024 as the analysts expect DPU to remain relatively flat before posting a healthy organic growth from FY2025 onwards.
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Despite the absence of income from ALOG Cold Centre — which will begin its redevelopment — the completion of AEI works at 7002 Ang Mo Kio Avenue 5, 16 Tai Seng Street, and 21B Senoko Loop will help partially offset the dip in income, the analysts add. Furthermore, E-LOG’s recapitalised balance sheet places them in a strong position to act on accretive acquisitions, the analysts point out.
DBS is maintaining “buy” on E-LOG with a lower target price of 38 cents from 40 cents previously.
Meanwhile, CGS-CIMB is keeping their “add” call on E-LOG with a target price of 39 cents, revising their FY2023 to FY2025 DPU forecast down by 0.07% to 1.44%.
As at 4.52pm, units in E-LOG are trading 0.5 cents down or 1.44% lower at 34 cents.
