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 high capital preservation ability.

Information Is Accurate Up To Jan 2024

Business Description

ESR LOGOS REIT (previously known as Cambridge Industrial Trust) is an industrial REIT that was listed in 2006 and owns 82 industrial properties across Singapore, Australia and Japan.

What I Like About ESR LOGOS REIT:

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 for the following reasons.

What I Do Not Like About ESR LOGOS REIT:

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 23.52% of their existing properties have an underlying land lease of less than 20 years. (Figure 10)
Riding on the above point, 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 (3Q 2023)

General Comments:

The gearing ratio is expected to decrease further to 35.3% assuming that divestment proceeds will be used to repay outstanding debt. The current deleveraging exercise is done as part of an asset rejuvenation initiative and to provide funding space for future acquisition

Positive Headwinds:

Completed 7002AMK AMEI will contribute to both top and bottom-line performances in the coming results
Rental reversions for FY2023 are expected to be around FY2022 reversion levels (+11.8%)
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:

Portfolio valuations will be weighed down by the decay in value of short land lease properties (7.6% of the portfolio has a land lease of <10 years)

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

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