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CGS-CIMB raises TP for ESR-REIT on acquisitions and potential inclusion in FTSE EPRA Nareit Index

Atiqah Mokhtar
Atiqah Mokhtar7/26/2021 04:36 PM GMT+08  • 3 min read
CGS-CIMB raises TP for ESR-REIT on acquisitions and potential inclusion in FTSE EPRA Nareit Index
CGS-CIMB has upped its TP for ESR-REIT to 52.1 cents.
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Following ESR-REIT’s recent 1HFY2021 ended June results release, CGS-CIMB Research has raised its target price for the REIT to 52.1 cents, up from 49.4 cents previously.

CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee have kept their “add” call for ESR-REIT after it reported a 1H2021 distribution per unit (DPU) of 1.55 cents, up 14.3% y-o-y, beating their expectations.

See also: ESR-REIT sees 13.9% higher DPU of 0.754 cents for 2Q21; 14.3% higher DPU of 1.554 cents for 1H21

In a July 23 note, Eing and Lock note that ESR-REIT’s revenue and net property income (NPI) for the 1HFY2021 rose 5.4% and. 8.4% y-o-y respectively, driven by the absence of provisions for Covid-19 related provisions made in FY2020 and lower property expenses.

The analysts also described the REIT’s operating metrics for the half year as “robust”, with portfolio occupancies edging up 0.9 percentage points q-o-q to 91.% in the 2QFY2021, beating the industry average of 90%.

Rental reversions also saw sequential improvement, despite remaining negative for the quarter, coming in at -0.2% compared to -5% in the previous quarter. “We expect rental reversions to remain flat in FY2021 against a backdrop of uncertainties with Singapore reinstating Covid-19 restrictions, slightly hindering business sentiment,” the analysts concede.

Nonetheless, Eing and Lock are bullish on ESR-REIT’s “stable portfolio”. The way they see it, the REIT is unlikely to make any more Covid-19 provisions given sufficient reserves to support tenants if needed, while its gearing of 42.9% and interest coverage ratio of 3.9 times indicate it is well-positioned to pursue acquisitions.

“Based on its acquisition track record, we think the REIT’s focus could be on acquiring more ramp-up logistics assets in Australia and Japan,” they say. They also note that ESR-REIT has asset enhancement initiatives (AEI) in the pipeline for 16 Tai Seng Street and 7000 Ang Mo Kio, following the AEI at 19 Tai Seng which is expected to achieve Temporary Occupation Permit (TOP) in 3QFY2021 with over 63% committed occupancy secured.

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To that end, the analysts have raised their FY2021-2023 DPU forecasts by 2%-3% to reflect the potential acquisitions and divestments, underpinning their higher target price. “We have also factored in a premium for its potential inclusion into FTSE EPRA Nareit Index,” they add.

Eing and Lock reiterate that ESR-REIT offers "attractive" dividend yields of over 6.5%.

As at 4.34pm, units in ESR-REITare trading flat at 44 cents.


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