Research from SooChow CSSD Capital Markets (Asia), SCCM Asia Research

SCCM Asia Research

Research from SooChow CSSD Capital Markets (Asia)

Headquartered in Singapore, SooChow CSSD Capital Markets (Asia) is an investment bank focusing on emerging growth companies across Asia, providing a full suite of investment banking services, including corporate finance, mergers and acquisitions advisory, equity capital markets, institutional equities sales and trading and equities research.

SooChow CSSD Capital Markets (Asia)

Equity Bottom-Up

<div><div><div><div><ul><li>Revising up our estimates on robust operating metrics. We raised our occupancy and passing rent estimates by 2.6 pp and 1.7% YoY to 93.7% and S$1.85psf pm in FY22E</li></ul><div><div><div><ul><li>Positive on the proposed merger with ALLT. We believe EREIT’s shareholder should vote in favour of the merger</li></ul><div><div><div><div><ul><li>Reiterate BUY; Upgrade TP to S$0.54/unit: We have priced-in latest developments including higher occupancy and passing rents, AEI and lower cost of funding.</li></ul></div></div></div></div></div></div></div></div></div></div></div>

Revising up our estimates on robust operating metrics. We raised our occupancy and passing rent estimates by 2.6 pp and 1.7% YoY to 93.7% and S$1.85psf pm in FY22EPositive on the proposed merger with ALLT. We believe EREIT’s shareholder should vote in favour of the mergerReiterate BUY; Upgrade TP to S$0.54/unit: We have priced-in latest developments including higher occupancy and passing rents, AEI and lower cost of funding.

ESR-REIT: Robust Performance; Pending Merger Approval

Thematic (Sector/Industry)

<h2>Singapore</h2><p>SREITs results in a glance (see detailed spreadsheet and calendar attached)</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/237/629/original/image_32975221321635260585172.png?1635260588" class="editor-image img-responsive" data-smartkarma-image-id="237629"></figure><h3><a href="https://www.smartkarma.com/entities/keppel-reit" target="_blank" data-smartkarma-citation="entities:192" rel="noopener">Keppel REIT (KREIT SP)</a> 3Q21 Business Updates – Robust growth from acquisitions, healthy occupancy and collections</h3><ul><li>9M21 revenue and NPI increased by 34.8% and 36.8% YoY to S$162.2m (74.8% of BB est.) and S$129.4m (75.0% of BB est.), respectively. 9M21 DI was up 20.8% YoY to S$159.9m (83.3% of BB est.), mainly due to contributions from Victoria Police Centre, Pinnacle Office Park and Keppel Bay Tower. The increase in DI was partially offset by the impact of the divestment of 275 George Street in Jul21</li></ul>

SingaporeSREITs results in a glance (see detailed spreadsheet and calendar attached)Keppel REIT (KREIT SP) 3Q21 Business Updates – Robust growth from acquisitions, healthy occupancy and collections9M21 revenue and NPI increased by 34.8% and 36.8% YoY to S$162.2m (74.8% of BB est.) and S$129.4m (75.0% of BB est.), respectively. 9M21 DI was up 20.8% YoY to S$159.9m (83.3% of BB est.), mainly due to contributions from Victoria Police Centre, Pinnacle Office Park and Keppel Bay Tower. The increase in DI was partially offset by the impact of the divestment of 275 George Street in Jul21

<h2>Singapore</h2>
<h3>
<a href="https://www.smartkarma.com/entities/esr-reit" target="_blank" data-smartkarma-citation="entities:10934" rel="noopener">ESR-REIT (EREIT SP)</a> and <a href="https://www.smartkarma.com/entities/ara-logos-logistics-trust" target="_blank" data-smartkarma-citation="entities:937" rel="noopener">ARA LOGOS (ALLT SP)</a> proposed merger to form ESR-LOGOS REIT; DPU accretive for both unitholders</h3>
<ul>
<li>The proposed merger will be effected by way of a Trust Scheme with EREIT acquiring all units of ALLT in exchange for a combination of cash and new units in EREIT. The merger is conditional upon, inter alia, the completion of ESR Cayman (“ESR” or the “Sponsor”) and ARA Asset Management’s merger. ALLT unitholders will receive a scheme consideration of S$0.95 for each ALLT unit comprising 1) the payment of S$0.095 in cash per ALLT unit and the allotment and issue of 1.6765 new EREIT units for each ALLT unit, issued at S$0.51. The total consideration for the proposed merger is ~S$1.4bn based on the Scheme Consideration of S$0.95 for each ALLT unit. Upon completion, the enlarged REIT will be renamed ESR-LOGOS REIT (E-LOG)</li>
<li>Post-merger, E-LOG will continue to be managed by EREIT manager. The shareholding structure of E-LOG will be: Summit Group (12.7%), ESR (10.9%), and public (76.4%). The merger also removes any potential overlapping mandate between EREIT and ALLT</li>
<li>From EREIT’s perspective, the merger is expected to be +5.8% DPU accretive on FY20 proforma basis and -6.4% NAV dilutive. From ALLT perspective, the merger is +8.2% DPU accretive on FY20 proforma basis and +2.2% NAV accretive as well</li>
<li>The effects of the merger: 1) Total assets will rise to 87 properties (S$5.4bn) with 2.2m sqft NLA and 437 tenants; 2) ~66% of portfolio exposure is in the new economy (logistics and hi-tech); 3) Rising occupancy to 94.5% (from 91.7%); 4) Increased WALE to 3.2yrs (from 2.8yrs); 5) Extend land lease expiry to 37.9yrs (from 31yrs); 6) lower cost of debt to 2.84% (from 3.24%) with longer WADE; and 7) +1.6x larger debt headroom</li>
<li>Unitholders’ approval for EREIT is required for both merger and issuance of units (&gt;50% of total number votes), while approval for ALLT are required for the scheme (&gt;50% in numbers, &gt;75% in value) and amendment of deed (&gt;=75%). Ivanhoe Cambridge Asia (holder of 8.74% of ALLT) has given an irrevocable undertaking to vote in favour of all resolutions</li>
<li>EREIT is trading at 1.17x P/B and 6.7% FY21E yield, while ALLT is trading at 1.39x P/B and 5.5% FY21E yield</li>
<li>The financing scheme and timeline is detailed on table below (illustrative purpose).</li>
</ul>

Singapore

ESR-REIT (EREIT SP) and ARA LOGOS (ALLT SP) proposed merger to form ESR-LOGOS REIT; DPU accretive for both unitholders

The proposed merger will be effected by way of a Trust Scheme with EREIT acquiring all units of ALLT in exchange for a combination of cash and new units in EREIT. The merger is conditional upon, inter alia, the completion of ESR Cayman (“ESR” or the “Sponsor”) and ARA Asset Management’s merger. ALLT unitholders will receive a scheme consideration of S$0.95 for each ALLT unit comprising 1) the payment of S$0.095 in cash per ALLT unit and the allotment and issue of 1.6765 new EREIT units for each ALLT unit, issued at S$0.51. The total consideration for the proposed merger is ~S$1.4bn based on the Scheme Consideration of S$0.95 for each ALLT unit. Upon completion, the enlarged REIT will be renamed ESR-LOGOS REIT (E-LOG)
Post-merger, E-LOG will continue to be managed by EREIT manager. The shareholding structure of E-LOG will be: Summit Group (12.7%), ESR (10.9%), and public (76.4%). The merger also removes any potential overlapping mandate between EREIT and ALLT
From EREIT’s perspective, the merger is expected to be +5.8% DPU accretive on FY20 proforma basis and -6.4% NAV dilutive. From ALLT perspective, the merger is +8.2% DPU accretive on FY20 proforma basis and +2.2% NAV accretive as well
The effects of the merger: 1) Total assets will rise to 87 properties (S$5.4bn) with 2.2m sqft NLA and 437 tenants; 2) ~66% of portfolio exposure is in the new economy (logistics and hi-tech); 3) Rising occupancy to 94.5% (from 91.7%); 4) Increased WALE to 3.2yrs (from 2.8yrs); 5) Extend land lease expiry to 37.9yrs (from 31yrs); 6) lower cost of debt to 2.84% (from 3.24%) with longer WADE; and 7) +1.6x larger debt headroom
Unitholders’ approval for EREIT is required for both merger and issuance of units (&gt;50% of total number votes), while approval for ALLT are required for the scheme (&gt;50% in numbers, &gt;75% in value) and amendment of deed (&gt;=75%). Ivanhoe Cambridge Asia (holder of 8.74% of ALLT) has given an irrevocable undertaking to vote in favour of all resolutions
EREIT is trading at 1.17x P/B and 6.7% FY21E yield, while ALLT is trading at 1.39x P/B and 5.5% FY21E yield
The financing scheme and timeline is detailed on table below (illustrative purpose).


<h2>Singapore</h2><h3>SREITs results in a glance (see detailed spreadsheet and calendar attached)</h3><table class="table table-striped"><tbody><tr><td style="width: 221.25px;"><p> </p></td><td style="width: 170.797px;"><p>SUN</p></td><td style="width: 166.969px;"><p>ALLT</p></td><td style="width: 166.984px;"><p>SSREIT</p></td></tr><tr><td style="width: 221.25px;"><p>Period</p></td><td style="width: 170.797px;"><p>1H21</p></td><td style="width: 166.969px;"><p>2Q21</p></td><td style="width: 166.984px;"><p>1H21</p></td></tr><tr><td style="width: 221.25px;"><p>Gross Revenue (S$ m)</p></td><td style="width: 170.797px;"><p>166.8 (+11.6% YoY)</p></td><td style="width: 166.969px;"><p>35.4 (+22.1% YoY)</p></td><td style="width: 166.984px;"><p>39.1 (+14.1% YoY)</p></td></tr><tr><td style="width: 221.25px;"><p>NPI (S$ m)</p></td><td style="width: 170.797px;"><p>112.6 (+23.9% YoY)</p></td><td style="width: 166.969px;"><p>30.5 (+39.2% YoY)</p></td><td style="width: 166.984px;"><p>25.7 (+23.2% YoY)</p></td></tr><tr><td style="width: 221.25px;"><p>DPU (S$ c)</p></td><td style="width: 170.797px;"><p>4.154 (+26.1% YoY)</p></td><td style="width: 166.969px;"><p>1.217 (-8.2% YoY)</p></td><td style="width: 166.984px;"><p>1.48 (+214.9% YoY)</p></td></tr><tr><td style="width: 221.25px;"><p>NAV per Unit (S$)</p></td><td style="width: 170.797px;"><p>2.062</p></td><td style="width: 166.969px;"><p>0.67</p></td><td style="width: 166.984px;"><p>0.52</p></td></tr><tr><td style="width: 221.25px;"><p>P/B (x)</p></td><td style="width: 170.797px;"><p>0.71</p></td><td style="width: 166.969px;"><p>1.30</p></td><td style="width: 166.984px;"><p>0.82</p></td></tr><tr><td style="width: 221.25px;"><p>Occupancy (%)</p></td><td style="width: 170.797px;"><p>2Q21:</p><p>93.8 (SG Retail)</p><p>92.1 (SG Office)</p><p>93.9 (AU Office)</p><p>100 (UK Office)</p></td><td style="width: 166.969px;"><p>2Q21:</p><p>98.2</p></td><td style="width: 166.984px;"><p>1H21:</p><p>83.4</p></td></tr><tr><td style="width: 221.25px;"><p>Reversion (%)</p></td><td style="width: 170.797px;"><p>2Q21:</p><p>+2.1 (Suntec City Office)</p><p>-7.2 (Suntec City Mall)</p></td><td style="width: 166.969px;"><p>1H21:</p><p>+2.4</p></td><td style="width: 166.984px;"><p>1H21:</p><p>+11.8</p></td></tr><tr><td style="width: 221.25px;"><p>Gearing (%)</p></td><td style="width: 170.797px;"><p>43.1</p></td><td style="width: 166.969px;"><p>39.5</p></td><td style="width: 166.984px;"><p>34.9</p></td></tr><tr><td style="width: 221.25px;"><p>Cost of Debt (%)</p></td><td style="width: 170.797px;"><p>2.41</p></td><td style="width: 166.969px;"><p>2.92</p></td><td style="width: 166.984px;"><p>3.4</p></td></tr><tr><td style="width: 221.25px;"><p>1 Yr Fwd Yield (%)</p></td><td style="width: 170.797px;"><p>5.85</p></td><td style="width: 166.969px;"><p>5.98</p></td><td style="width: 166.984px;"><p>6.74</p></td></tr><tr><td style="width: 221.25px;"><p>Debt Hedged (%)</p></td><td style="width: 170.797px;"><p>64</p></td><td style="width: 166.969px;"><p>65.8</p></td><td style="width: 166.984px;"><p>60.4</p></td></tr><tr><td style="width: 221.25px;"><p>Target Price</p></td><td style="width: 170.797px;"><p>N/A</p></td><td style="width: 166.969px;"><p>N/A</p></td><td style="width: 166.984px;"><p>N/A</p></td></tr><tr><td style="width: 221.25px;"><p>Rating</p></td><td style="width: 170.797px;"><p>N/A</p></td><td style="width: 166.969px;"><p>N/A</p></td><td style="width: 166.984px;"><p>N/A</p></td></tr></tbody></table>

SingaporeSREITs results in a glance (see detailed spreadsheet and calendar attached) SUNALLTSSREITPeriod1H212Q211H21Gross Revenue (S$ m)166.8 (+11.6% YoY)35.4 (+22.1% YoY)39.1 (+14.1% YoY)NPI (S$ m)112.6 (+23.9% YoY)30.5 (+39.2% YoY)25.7 (+23.2% YoY)DPU (S$ c)4.154 (+26.1% YoY)1.217 (-8.2% YoY)1.48 (+214.9% YoY)NAV per Unit (S$)2.0620.670.52P/B (x)0.711.300.82Occupancy (%)2Q21:93.8 (SG Retail)92.1 (SG Office)93.9 (AU Office)100 (UK Office)2Q21:98.21H21:83.4Reversion (%)2Q21:+2.1 (Suntec City Office)-7.2 (Suntec City Mall)1H21:+2.41H21:+11.8Gearing (%)43.139.534.9Cost of Debt (%)2.412.923.41 Yr Fwd Yield (%)5.855.986.74Debt Hedged (%)6465.860.4Target PriceN/AN/AN/ARatingN/AN/AN/A

ASEAN Builder's Scoop (22Jul21) - SUN Office Portfolio Offset Retail Weakness

Singapore

ARA LOGOS Logistics Trust operates as a real estate investment trust. The Company invests in logistics warehouse properties. ARA LOGOS Logistics Trust serves customers in Singapore.

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ARA LOGOS (ALLT SP)

ESR-REIT: Robust Performance; Pending Merger Approval

Robust performance; Pending merger approval. We raised our TP to S$0.54/unit as we expect operating metrics to remain robust in FY22E.

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KREIT healthy collections; KDCREIT boosted by acquisitions; MLT steady as she goes; CLCT record high NPI; ALLT EFR effect dilutes DPU; MEG raises...

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EREIT/ALLT merger, DPU accretive for both unitholders; AAREIT strong quarter, Upgrade to BUY; Porcelain Hotel on sale for S$90m; WCTHG mixed-use...

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ASEAN Builder's Scoop (22Jul21) - SUN Office Portfolio Offset Retail Weakness

SUN office portfolio offset retail weakness; ALLT boosted by AUS acquisitions; SSREIT robust operational metrics; CIT extends tenant support; FILRT...

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