Frasers Logistics & Industrial Trust - OCBC Investment 2017-06-07: Scaling Up On Inorganic Growth

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FRASERS LOGISTICS & IND TRUST BUOU.SI

Frasers Logistics & Industrial Trust - Scaling Up On Inorganic Growth

• Proposed acquisitions from sponsor.
• Positive portfolio attributes.
• Expected to be DPU accretive.

Proposed portfolio acquisition of seven properties from sponsor 

• Frasers Logistics & Industrial Trust (FLT) announced yesterday that it has proposed to acquire a portfolio of seven fully leased or pre-committed industrial properties in Australia from its sponsor Frasers Centrepoint Limited (FCL).
• This comprises four completed properties and three properties currently under development.
• The aggregate purchase consideration is ~A$169.3m, which is slightly below their aggregate valuation of A$171.3m (total acquisition costs estimated to be A$179.6m).
• The initial NPI yield is estimated to be 6.4% (6.8% for the completed properties and 6.1% for the development properties).

Robust portfolio metrics 

• We are positive on this transaction given a number of reasons. 
  • Firstly, the portfolio of properties has an occupancy rate of 100% (including pre-committed leases for the development properties). 
  • Secondly, the 9.6 years WALE of the properties is higher than FLT’s existing portfolio WALE of 6.7 years (overall WALE will increase by 0.2 years to 6.9 years as a result). 
  • Thirdly, the average age of the properties is 2.4 years, which we believe signifies minimal maintenance capex requirements ahead.
  • Fourthly, there are built-in annual rent escalations of 3.1% embedded in the leases.
• Furthermore, six of the properties are on freehold land and the one on leasehold land has 89 years remaining. According to FLT, funding for the proposed acquisitions may be through borrowings or a combination of both debt and equity.

Maintain BUY 

• FLT is required to obtain approval from unitholders at an EGM given that this is an interested party transaction. 
• Pending such approval and finalisation of the actual funding structure for this transaction, we keep our forecasts for now. However, we expect management to utilise a capital structure which will be DPU accretive to unitholders and hence see upside to our projections. If we assume a debt-to-equity funding ratio of 55%:45%, pro forma DPU is expected to increase by 0.9%.
• Reiterate BUY and S$1.12 fair value estimate on FLT.

Wong Teck Ching Andy CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-06-07

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.120 Same 1.120