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


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.

Deepens exposure in Europe without forgetting Australia

  • 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).

Quality assets to improve portfolio metrics

  • 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.

Acquisition to be accretive in the long run

  • 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.

Maintain HOLD with a higher DDM-based Target Price of S$1.25

  • 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