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  • Writer's pictureDaniel Lee

Should You Invest In ESR LOGOS REIT [Fundamental Analysis]

In this article, we'll be conducting a fundamental analysis of ESR LOGOS REIT and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having a high degree of capital preservation ability.


Information Is Accurate Up To May 24


Business Description

ESR LOGOS REIT (previously known as Cambridge Industrial Trust) is an industrial REIT that was listed in 2006 and owns 72 industrial properties across Singapore, Australia and Japan.


What I Like About ESR LOGOS:

  • Strong sponsor with a decent portfolio will provide a healthy pipeline that can facilitate ESR LOGO’s asset rejuvenation plan and overseas acquisition

  • I’m in favour of the management's strategic direction to acquire overseas industrial property and move into the new economy sector as I have a strong bias against local industrial properties



What I Do Not Like About ESR LOGOS:

  • Poor track record of maintaining a stable distribution per unit and capital preservation for existing shareholders. (Figure 8)

  • The impact of lease decay on the existing portfolio’s net asset value is high as a good portion of their existing properties have an underlying land lease of less than 20 years. (Figure 10)

  • The management’s ability to retain the net asset value thus far is low. This could be a combination of a low land lease expiry of Singapore properties and a lack of management skills. (Figure 3)

  • Following the strategic direction to acquire overseas property, the management in this regard is unproven in their ability to generate yield accretive acquisition (both locally and overseas).



Updates From Recent Performance (FY23 & 1Q24)

General Comments:

  • FY2023 gross revenue grew at 12.6% and net property income grew at 11.8% year on year but the growth is predominately driven by full-year contribution from ALOG Trust after the merger in April 2022.

  • DPU decrease experienced a 14.5% dip due to a 27.3% increase in the units in issue as part of the pre-emptive equity fundraising exercise conducted in 2023.

  • The gearing ratio reduced from 41.80% to 35.70% as the management used part of the funds raised to pare down on the existing debt.

  • In early FY2024, ESR logos also announced the strategic investment of US$70mil into ESR Japan Income Fund which holds 5 freehold properties in Japan that are expected to be 1.8% yield accretive.


Positive Headwinds:

  • The bulk of ESR LOGOS refinancing requirements are beyond 2026 and as such, likely, the worst of the high interest rate environment is over given the fact that interest rates will normalize by 2026.


Negative Headwinds:

  • NAV & DPU is expected to be negatively affected in the short run as a result of the disruption in between the portfolio rejuvenation.


Download Full Report On Telegram

and continue reading my independent analyst report which will provide you with a detailed look at the fundamentals of the stock and a range of price targets to help you out with your investment decision for ESR LOGOS REIT:

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"Retire With REITS" eBook/Webinar

If you are new to REIT investing or would like to sharpen your investment knowledge, you can gain access to my webinar and download my e-book: "Retire With REITs" which will give you insights as to how I analyse and select the right REITs to invest in for passive income generation!


- Work In Progress -


Daniel is a Licensed Independent Financial Consultant with MAS and a Certified Financial Planner (CFP®).


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Disclaimer:

This article is meant to be the opinion of the author

This article is for information purposes only

This article should not be seen as financial advice

This advertisement has not been reviewed by the Monetary Authority of Singapore


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