Analysts from CGS International, Citi Research and Maybank Securities have kept their “add” and “buy” calls after ESR-LOGOS REIT J91U (E-LOG) posted its business update for the 1QFY2024 ended March 31 on April 23.
E-LOG reported gross revenue of $89.0 million for the 1QFY2024, 8.9% lower y-o-y while net property income (NPI) fell by 10.8% y-o-y to $62.9 million.
CGS analysts Lock Mun Yee and Natalie Ong have kept their distribution per unit (DPU) estimates unchanged for FY2024 to FY2026 for the time being. Their target price is also maintained at 39 cents.
As at their April 23 report, Lock and Ong still remain positive on E-LOG as its recapitalised balance sheet will enable the REIT to tap into inorganic opportunities.
Citi Research’s Brandon Lee has also kept his target price of 37 cents as he notes E-LOG’s strong positive rent reversion, which reveals a tight supply of industrial properties in Singapore. That said, he adds that the REIT’s weaker occupancy suggests industries could be “rightsizing”.
At the same time, Lee notes that E-LOG’s divestment of 10 of its non-core assets dragged its 1QFY2024 figures, referring to its lower NPI.
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While E-LOG has outperformed the larger Singapore REITs (S-REITs) sector with its unit price down 9% year-to-date (ytd) compared to the sector’s 14% decline, Lee continues to like E-LOG due to its valuations of 0.9 times P/B and at 9% and 9.4% of its FY2024 and FY2025 yields respectively.
The analyst sees three major share price catalysts, which are: continued and, or sustained share buybacks, DPU-accretive acquisitions and net asset value (NAV)-accretive divestments.
Meanwhile, Maybank’s Li Jialin has lowered her target price on E-LOG to 32 cents, down from 33 cents previously, as she lowers her revenue forecast for FY2024 by 6%.
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The lowered forecast was made to account for the income gap, which arose from a bout of divestments conducted in FY2023. E-LOG’s 1QFY2024 update reflected “mixed operational signs” which weren’t enough to offset the gap, Li writes in her April 24 report.
During the quarter, the analyst notes that portfolio reversion held up, which is a plus, although this was offset by the dip in occupancy. The REIT also reported a higher set of expenses as its cost of debt crept up by 15 basis points (bps) to 4.06% as E-LOG renewed its hedges in April this year.
“E-LOG refinanced the expiring debt of $163 million with its first sustainability linked loan facility in April 2024. Post-refinancing, E-LOG has a higher gearing of 35.3% and lower fixed rate exposure of 74.2%, both on a pro-forma basis. Full-year borrowing cost guidance is raised to 4.1% from 3.94% as the REIT further renews its hedges,” Li notes.
In addition to her lowered target price and revenue estimate, Li has also lowered her DPU forecasts for the FY2024 and FY2025 by 9% to 12% to factor in the REIT’s recent divestments and higher financing costs.
However, she remains upbeat on the REIT for its “attractive” FY2024 yield of 8.2%.
As at 2.08pm, units in E-LOG are trading 0.5 cents lower or 1.72% down at 28.5 cents.
