Broker's take: DBS has 'buy' call on ESR-Reit on proposed merger

DBS Group Research has put out a "buy" call for ESR-Reit, saying that the proposed merger of ESR-Reit and Viva Industrial Trust (VIT) could bring benefits to both sets of unitholders as the combined entity would potentially become the fourth largest industrial Reit in Singapore.

Backed by sponsor E-shang Redwood, the combined entity would offer a sizeable pipeline of acquisition prospects and deal flow, said the analysts.

DBS Group Research said that the proposed merger also puts the merger and acquisition spotlight back on mid-cap industrial Reits.

"With midcap industrial Reits struggling to deliver inorganic growth over the past years, the consolidation of ESR-Reit and VIT enable two mid-sized Reits to leapfrog onto the 'big stage'," said the analysts.

They said this closes the gap in terms of asset under management (AUM) with the larger cap industrial Reits like Ascendas Reit, Mapletree Logistics Trust, and Mapletree Industrial Trust.

"Support of a larger sponsor (e-Shang Redwood) implies better access to debt and capital markets coupled with a visible acquisition pipeline and sourcing capability. This will empower the combined ESR Reit-VIT with additional firepower to pursue inorganic growth opportunities," said DBS.

DBS has a target price of S$0.63 for ESR-Reit, with potential further re-rating upon completion of the merger.