Recapitalised for growth
- Strong double-digit positive rent reversions continued at +11.6% in 1H23
- Redevelopment of ALOG Cold Centre announced with an estimated ROI of 7.0%
- FY23 marked the year of “reset” with divestments and redevelopments; organic growth to be amplified from FY25
- Maintain BUY with revised TP of S$0.38
Higher revenues and NPI mainly due to ALOG merger
- 1H23 Revenues and NPI were 33.35% and 37.0% higher, mainly due to April 2022’s merger with ALOG
- it was also partly due to acquisition of Sakura Distribution Centre in October 2022
- When compared against 2H22, NPI was down slightly (c.-0.5%) as higher revenues were offset by higher operating expenses
- Partially also due to the divestment of Pandan Logistics Hub on 21 February
1H23 DPU of 1.378 Scts in line with our projections
- 1H23 DI of S$101.5m was 37.9% higher y-o-y, mainly due to the merger with ALOG as well as the acquisition in Japan
- Partially offset by higher financing costs
- Includes S$17.5m in capital gains distribution
- Capital gains distribution likely to continue in coming quarters to help offset some of the absence of income from ongoing AEIs and redevelopments
- Estimated to have a remaining S$30m in capital gains able to be utilised
- 1H23 DPU was c.5.6% lower y-o-y, mainly due to enlarged unit base
- S$150m private placement on 27 February 2023
- S$150m preferential offering on 28 April 2023
- The 1.378 Scts makes up c.52% of our previous FY23 DPU projections
Slight decline in overall portfolio valuations
- Compared to 31 December 2023, portfolio valuations declined c.2.0% (c.S$94m)
- Mainly due to the divestment of Pandan Logistics Hub
- Partly due to valuation decline of hotel components at ESR BizPark @ Changi
- Hotel lease renewed for two years at a c.25%-30% lower rent
- Land lease decay of Singapore portfolio also contributed to some of the valuation decline
- Cap rates could continue to expand in the medium-term as interest rates remain high
- Cap rates in Singapore could expand slightly (c.25bps), but valuations should be held up by higher rents
- Cap rates in Australia could expand by c.50-75bps, but to be partly offset by higher rents
- EREIT’s exposure to Australia is relatively small (c.20% of AUM)
- Every 25bps increase in overall portfolio cap rates could lead to a c.2.3% (or c.S$115m) decline in portfolio valuations
Double-digit positive rental reversions
- Strong double-digit positive rental reversion of +11.6% for 1H23
- Vs. +7.3% in 1Q23
- Positive rental reversions in 1H23 recorded across property segments:
- +35.6% for high-specs industrial
- +16.1% for general industrial
- +10.9% for logistics
- +5.1% for business parks
- Exceptionally high positive rental reversions for high-specs industrial was mainly due to a renewal from an anchor tenant at 16 Tai Seng Drive, where rents renewed at c.40% higher
- Higher rents at the property following the AEIs
- Positive rental reversion reports expected to continue in 2H23 and next year.
- Overall positive rental reversions for FY23 expected to be between +9% to +10%
- Positive rental reversions in 2H23 expected to remain strong, but slightly lower than 1H23
- Rate of rent increases for high-spec industrial and general industrial should taper off
- 15.1% of leases will be due for renewal in 2H23; bulk from the logistics segment
- 20.6% and 21.3% of leases will be due to expire in FY24 and FY25
- Positive rental reversions should continue as majority of leases are from logistics property
- There is room for further positive reversions as passing rents across portfolio are still significantly below current market rents
- Slight improvement in portfolio occupancy rates to 92.9% in 2Q23
- Occupancy rates were 92.1% in 1Q23
- Higher occupancy rates were driven by Singapore and Australia portfolios.
