Frasers Logistics & Industrial Trust - DBS Research 2018-07-05: Divests Property At 40% Premium To Book Value

Frasers Logistics & Industrial Trust - DBS Vickers 2018-07-05: Divests Property At 40% Premium To Book Value FRASERS LOGISTICS & IND TRUST SGX: BUOU

Frasers Logistics & Industrial Trust - Divests Property At 40% Premium To Book Value

  • Sale of 80 Hartley Street for A$90.5m, c.40% premium above book value.
  • Significant premium above book achieved; proceeds could be deployed to other uses or paid to shareholders.
  • NAV increased slightly by 1sct post sale.

What’s New

Sale of property in New South Wales.

  • Frasers Logistics & Industrial Trust (FLT) announced the proposed divestment of 80 Hartley Street, Smeaton Grange in New South Wales for A$90.5m (c.S$90.5m). The property has a GFA of 61,281 sqm and was constructed more than 20 years ago back in 1998.
  • The property has good specifications, comprising a cross-dock, regional distribution facility with office accommodation and offers good access to trucks and ample car park spaces. The property was purpose-built for Coles Supermarkets Australia Pty Ltd and has a remaining lease of c.5 years after the extension of an existing lease.

Significant premium above book value achieved.

  • The sale consideration implies 40.3% above the book value of the property of A$64.5m (as at 31 March 2018) and 39.2% premium to the original purchase price of A$65.0m back during the IPO. 
  • The sale price is estimated to be slightly above the revised valuation of A$88.5m (as at 1 July 2018) assuming an extension of the lease excluding incentives. The estimated divestment gain is A$17.7m (S$17.7m) after accounting for taxes, divestment fees etc.
  • Proceeds from the divestment could be utilised towards repayment of debt/payment to unitholders or M&A, which will be announced later once a strategy is firmed up by the Manager.

Our thoughts

Unlocks significant gain.

  • With demand for warehouses in Sydney running red-hot, we are positive that the Manager of FLT has chosen to selectively realise their value through divestments. The Manager has been able to unlock a significant gain through the divestment and the proceeds can be utilised towards other higher yielding assets.
  • Exit yield is estimated to be c.6.1% (after lease extension and before incentives).

Noticeable earnings impact; but acquisitions will more than compensate for the loss of income.

  • The impact on financials is noticeable as the property’s net property income (NPI) is projected to form c.3.9% of FLT’s 2Q18 portfolio NPI but contribution after accounting for the full year contribution from the REIT’s European portfolio acquisition is projected to fall to c. 2.0%.
  • NAV inches up from 94 scts to 95 scts post sale.
  • No change to our estimates pending completion of the sale.
  • (Maintain BUY; Target Price S$1.20)

Derek TAN DBS Vickers | Carmen TAY DBS Vickers | Mervin SONG CFA DBS Vickers | https://www.dbsvickers.com/ 2018-07-05
SGX Stock Analyst Report BUY Maintain BUY 1.200 Same 1.200