Maybank Securities analyst Li Jialin has slashed ESR-LOGOS REIT’s J91U target price twice in a week to factor in an enlarged share base from two share offerings.
The REIT is trying to raise $300 million via a private placement and a preferential offering.
While Li maintains her “buy” call on ESR-LOGOS REIT, she cut her target price to 51 cents from 55 cents in a Feb 10 note, before slashing it further to 45 cents in a Feb 17 note.
ESR-LOGOS REIT announced on Feb 17 that its private placement was three times subscribed, with 454.5 million units to be issued at 33 cents per share.
According to the REIT manager, the investors include quality long-only institutional investors, real estate specialists and existing investors.
In addition, the REIT will be launching a preferential offering, with entitled unitholders subscribing for new units at 32.5 cents each.
“Management will channel $293 million, or 98%, of the gross proceeds to potential acquisitions and redevelopment or asset enhancement initiatives (AEIs), with the remainder to cover related expenses,” writes Li.
ESR-LOGOS REIT has three ongoing AEIs, and one cold storage redevelopment project under discussion.
Management divested $150 million of assets in FY2022 ended December, and has identified a pipeline of $450 million for sale, pending JTC’s approval. “If successful, EREIT will have sufficient dry powder for its next move,” notes Li.
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Sponsor ESR Group completed the development of two assets in Singapore (Tuas Logistics Hub and Logos Penjuru Logistics Centre in Singapore) and two in Japan last year. These will become available for acquisition, notes Li.
De-risking the balance sheet
As of December 2022, ESR-LOGOS REIT’s gearing stood at 41.8%, up 160 basis points (bps) q-o-q.
While it has an undrawn facility of $320 million, the REIT has decided not to over-stretch its balance sheet, notes Li.
Upon the equity fundraising, gearing will fall to 38%, and further to 32.3%, after its planned $450 million in divestments, assuming that the proceeds are used to repay existing debt.
At 38% gearing, the REIT’s debt headroom will be $1.1 billion based on a 45% aggregate leverage limit.
Pro-forma net asset value (NAV) will dip by 1.4% to 35.9 cents. “We see this as a good opportunity to de-risk the balance sheet, and to prepare for more actions in FY2023,” says Li.
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Organic growth to see through 1HFY2023
ESR-LOGOS REIT’s fundamentals remain healthy, with additional income from Japan Sakura DC, and the ARA LOGOS Logistics Trust portfolio acquired in April 2022 making a full-year contribution in FY2023, notes Li.
ESR-LOGOS REIT reported a distribution per unit (DPU) of 1.540 cents for the 2HFY2022 ended December, 7.5% higher than the DPU of 1.433 cents in the same period the year before.
DPU for the FY2022 stood at 3 cents, 0.4% higher than FY2021’s DPU of 2.987 cents.
Distributable income for the half-year period surged by 79.6% y-o-y to $103.5 million due to the higher gross revenue and net property income (NPI).
Li lowers her DPU forecast for FY2023 by 11% to 2.7 cents due to the enlarged unitholder base. Dividend yield forecast is “attractive” at 7.7%, she adds.
As at 4.05pm, units in ESR-LOGOS REIT are trading 2 cents lower, or 5.71% down, at 33 cents.
