In a Tuesday report, analyst Yeo Zhi Bin says he expects a slightly weaker 4Q ahead due to the trust’s divestments in the same period; lower occupancy at 3 Pioneer Sector 3; as well as the income void at 21B Senoko Loop following the pre-termination of Tellus Marine which took place in 2Q17.
ESR-REIT’s 3Q DPU came in within CIMB’s expectations, with the narrowing of its quarterly DPU decline to low-single digit from double digits in the past quarters indicating that the REIT is reaching in inflection point, in CIMB’s view.
The analyst has therefore reduced his FY18-19F distribution per unit (DPU) estimates by 0.1%, as he believes the absence of income from the divestments should be offset by lower borrowing costs.
Looking ahead, Yeo believes ESR-REIT’s divestments of 23 Woodlands Terrace and 87 Defu Lane 10, which are expected to complete in 4Q17, could help to further improve the trust’s balance sheet.
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He also notes that the REIT is at the tail-end of its multi-tenanted building (MTB) conversion, with only 12% of its portfolio representing single tenanted buildings (STB) expiring up to FY19F.
“Management continues to scour for acquisition opportunities to take ESR-REIT to the next growth stage. We believe what it does next would have a significant bearing on unit price (from both upside and downside perspective). Until then, we believe that the unit price would trade sideways,” says Yeo.
As at 1pm, units in ESR-REIT are trading 1 cent lower at 57 cents, 0.92 times FY18 book value.
