The Business Times

Brokers' take: ESR-Reit's acquisitions will likely drive earnings, say analysts

Tan Nai Lun
Published Mon, Jul 26, 2021 · 03:58 PM

J91U : J91U 0% will likely post stable earnings, boosted by its acquisition plans and asset enhancement initiatives, analysts said.

CGS-CIMB raised its target price for the real estate investment trust (Reit) to 52.1 Singapore cents from 49.4 cents, while DBS Group Research raised its target price to S$0.53 from S$0.45. Both research teams kept their respective "add" and "buy" calls on the counter.

Units of ESR-Reit are trading at 44.5 cents as at 3.24pm on Monday, up 0.5 cent or 1.1 per cent.

In a research note on Friday, CGS-CIMB raised its estimates for the Reit's distribution per unit by 3.2 per cent in FY2021, 2.2 per cent in FY2022 and 2.6 per cent in FY2023 to factor in acquisitions and divestments.

It noted that the industrial-focused Reit is actively seeking acquisitions and remains cautiously optimistic for FY2021 amid steady leading demand, and expects the Reit may plan to acquire more ramp-up logistics assets in Australia and Japan.

DBS also said the completed acquisition of 46A Tanjong Penjuru will likely boost ESR-Reit's earnings in the following quarters, noting that logistics properties in the Penjuru precinct have been seeing very robust demand and rental growth.

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Meanwhile, the completion of the Reit's maiden overseas acquisition in Australia has also reduced some concerns on its portfolio remaining land tenure, and there will likely be more acquisitions given its sponsor's portfolio throughout the region, the research team added in its research note on Monday.

DBS said it is positive on the Reit's proactive lease renewing, high tenant retention rate and some positive rental reversions for selected leases, although it notes year-to-date rental reversions continue to be negative.

It added that the Reit's enlarged portfolio and larger market cap has allowed more alternative sources of funding at potentially more favourable terms, and also placed ESR-Reit as a potential candidate for the FTSE EPRA Nareit Global Real Estate Index in September, which could drive up unit prices, improve trading liquidity and lower cost of capital.

Additionally, CGS-CIMB said rental reversions will likely remain flat in FY2021 amid uncertainties due to new Covid-19 restrictions in Singapore, but expects the Reit will not make any more Covid-19 provisions in FY2021 as it has enough reserves to provide targeted support to tenants if needed.

Both analysts are also positive that the Reit has an attractive dividend yield compared to its other industrial Singapore Reit peers.

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