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Is ESR-REIT 7% Yield A Good Buy

Source: ESR-REIT homepage

Key Highlights

  • ESR-REIT (SGX: J91U) is going to ex-date on 10 October

  • It is also raising fund through offering a 1-for-1 right issue

  • It is currently trading at 7% yield

ESR-REIT is the fourth largest industrial REIT after the merger with Viva Industrial REIT last year. Its dividend yield has hovered around 7 - 7.8% yield in the past few years. While the dividend yield is relatively attractive as compared to its peers, it is also crucial to consider whether the payout and the yield are sustainable. We highlighted three key risks of ESR-REIT below.

1. Distribution per unit (DPU) is likely o fall

There was a spike in DPU in the first half of 2019, which was mainly due to the one-off capital gain received from the Singapore Land Authority (SLA). The one-time gain contributed about 9% of the dividend payout in the first half of 2019.

2. 7% dividend yield is not convincing

The DPU has been declining since 2015. The 7% yield was "supported" by the declining stock price rather than the dividend payout. We prefer a REIT with a decent yield and consistent dividend growth than a high yield REIT with declining DPU and stock price.

3. Fundraising for acquisitions and paying off debt

ESR-REIT is exercising a 1-for-1 right issue to raise fund. The proceeds will be used for acquisitions and asset enhancement initiatives. However, part of the funds will be used to pay off some debts which will dilute DPU moving forward. It is one of the REIT with high gearing ratio (> 42%), which limits its capabilities on debt financing.


With the factors outlined, we would think that there will be some uncertainties on ESR-REIT to maintain its dividend payout moving forward.

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