Merged ESR Price on 18th May 2018 = $0.53
- Yield = 6.75%
- Price-to-book Ratio = 1.034
- Assets per unit = $0.956
- Debt per unit = $0.443 (including current liabilities and perpetual securities)
- Gearing = 46.4%
- Secured NAV = $0.513 (97% of trading price)
If you look at the announcement on both sides, it seems a win-win situation but I don't think so. Let's take a look at the argument.
While there is an increment of 5.6% in yield to the merged yield of 6.75%, there is at the same time a 10% drop in NAV from $0.584 to $0.513, a loss of about 7 cents per share for ESR REIT unitholders. This is because Viva Industrial Trust has been trading at a premium to NAV, about 15% more based on a price of $0.915, the price which was shown while trading is halted. Moreover, they are buying at $0.96 which is even higher. Thus, it is inevitable that the price-to-NAV would suffer. Whether we are able to accept this is another issue.
As for Viva Industrial Trust unitholders, while they sold their shares to ESR REIT at a 20 cents premium per share from their NAV which is very high, their new yield suffered from 8.03% to 6.75%, a more than 1% drop. Thus, they will be getting close to 20% drop in yield. To be frank, I think this is a smaller loss compared to the original ESR REIT as it is probably about 1.6 cents lesser per year. Moreover, they got to invest in the merged REIT at close to NAV price which is quite good for them. And they are getting 9.6 cents per Viva share for this deal which is a great sweetener and makes the deal attractive.
To be frank, I was expecting the merged yield to be above 7% so that it is good enough for ESR REIT to say yes to the deal. With 6.75%, I don't think the deal is very appealing although it seems fair. They are really banking just on the asset scale and equity scale, with a strong sponsor for the market to re-rate them accordingly to a level that is at least Frasers Logistics and Industrial Trust. However, the yield is quite comparable already although the merged REIT is still cheaper compared to Frasers Logistics and Industrial Trust. For Viva Industrial Trust unitholders, it seems better solely because of the 9.6 cents which ESR REIT is going to pay.
I have about $80,000 in Viva Industrial Trust and $100,000 in ESR REIT and it makes it extremely tricky for me. As a Viva Industrial Trust unitholder, I am satisfied with the premium that I am getting. As an ESR REIT unitholder, it doesn't make a lot of difference to me. I am still in a daze of what I should do especially I participated in the preferential offering at $0.54 and now it is trading below that price. Thus as an merged unitholder, I hope that the re-rating turns out to be true so that there is a chance for me to sell some of my holdings for a profit.
thanks for the post! i also bought some ESR reits last year and was trying to understand why the price dropped to 51 cents recentlyReplyDelete
what's your decision sir?ReplyDelete