Frasers Logistics & Industrial Trust - CGS-CIMB Research 2019-07-03: Growth With A Stronger European Flavour

FRASERS LOGISTICS & IND TRUST (SGX:BUOU)

Frasers Logistics & Industrial Trust - Growth With A Stronger European Flavour

FRASERS LOGISTICS & INDUSTRIAL TRUST (SGX:BUOU)’s acquisition of a A$644.7m portfolio of 12 properties deepens its exposure to Europe and improves overall portfolio quality.
Accretion from the acquisition is offset by the prior divestments in FY19 and a lower A$ vs. S$ assumption.
Maintain HOLD with a higher Target Price of S$1.25; wait for a better entry price.

FRASERS LOGISTICS & INDUSTRIAL TRUST (SGX:BUOU) has announced the proposed acquisition of 12 prime logistics properties in Germany and Australia from its sponsor. The agreed property purchase price is c.A$644.7m, which comprises nine German properties (for c.A$519.2m) and three Australian properties (for c.A$125.5m). This acquisition is expected to be completed by end-Aug 2019.
Post-acquisition, AUM would grow to A$3.5bn, from A$2.9bn currently, represented by Australia (56.3% of AUM) and Europe (43.7% of AUM).

The properties have a total 7 sqm, are 100% free logistics hubs of Germany Australia. They have an effective rent-paying occupancy in rental escalations.
The properties have an average years and a weighted average 8.6 years; this would increase the 6.7 years further strengthen the expiry less than 16.3% of expiring in financial year.
The acquisition also tenant risk as top 10 now comprise 2% of gross vs. 30% pre-acquisition.

Based on 1H19 pro-forma financials disclosed by the Manager, the proposed acquisition coupled with the prior divestments in FY19 will result in a 1.1% increase in DPU to 3.58 Scts excluding the impact of a one-off capital gains tax on the FY19 divestments. Including this impact, the DPU would have been 3.47 Scts.
The pro-forma, which assumed a 60:40 debt-equity funding ratio, also showed a 3.3% increase in NAV and an increase in gearing from 35.1% to 36.1%. While the funding mix has not been finalised, our assumptions closely track those used in the pro-forma as disclosed by the Manager.

We adjust our forecasts to account for the proposed acquisition, prior divestments and potential equity fund-raising. We also lower our risk-free rate assumptions for Australia (from 2.4% to 2.0%) and Germany (from 0.5% to 0.3%) to account for the more dovish interest rate environment. Our foreign exchange assumptions are also adjusted to account for the weaker A$ vs. S$.
Overall, while we view the proposed acquisition positively, we think that valuations are still steep.
Movements in interest rates and foreign exchange rates continue to be both positive and negative catalysts.

LOCK Mun Yee CGS-CIMB Research | Ervin SEOW CGS-CIMB Research | https://research.itradecimb.com/ 2019-07-03

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.25 UP 1.21