Brokers’ take: OCBC lowers ESR-Logos Reit’s fair-value estimate on enlarged share base

OCBC Investment Research has lowered its fair-value estimate on ESR-Logos real estate investment trust : J91U 0% (Reit) from S$0.42 to S$0.38, following the Reit’s enlarged share base following its equity fundraising exercise. The research team kept its “buy” call on the Reit unchanged in a note on Tuesday (Apr 11).

Analyst Chu Peng noted that the Reit completion of its private placement at an issue price of S$0.33 per unit, and that it had at the same time also announced a non-renounceable preferential offering at an issue price of S$0.325.

These form part of the Reit’s plans to raise S$300 million, which will be used to repay debt, finance redevelopments or asset-enhancement initiatives and further acquisitions.

Chu thus lowered her FY23-FY27 distribution per unit (DPU) forecasts by 8 to 10 per cent in view of the enlarged share base.

OCBC’s research team expects the Reit’s gearing to fall to 38 per cent from 41.8 per cent. “[The Reit] is exercising prudent capital management, in our view, to lower its gearing level below 40 per cent amid a higher interest environment,” she said.

While she believes that the Reit’s fundamentals are healthy, she advised investors to consider taking up the preferential offering to avoid dilution of shares.

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The research team remains cognisant of the Reit’s potential downside risks of tenant defaults or asset conversions from master-leased to multi-tenanted.

As at 4.57 pm on Tuesday, ESR-Logos Reit’s units traded 1.5 per cent or S$0.005 lower at S$0.325.