Frasers Logistics & Industrial Trust - CGS-CIMB Research 2019-11-06: Full Marks For Occupancy

FRASERS LOGISTICS & IND TRUST (SGX:BUOU)

Frasers Logistics & Industrial Trust - Full Marks For Occupancy

Frasers Logistics & Industrial Trust's 4QFY9/19 DPU of 1.73 Scts was broadly in line due to new acquisitions.
Occupancy boosted to 100% post quarter-end with new lease from Amazon.
Maintain ADD with a higher Target Price of S$1.31 to incorporate the full-year FY19 results, update our FX and Australian risk-free rate assumptions.

FRASERS LOGISTICS & INDUSTRIAL TRUST (SGX:BUOU)'s 4QFY9/19 DPU of 1.73 Scts (-2.8% y-o-y, flat q-o-q) came in at 27% of our FY9/19 forecasts due to contributions from its new acquisitions in Europe and Australia but partially offset by some divestment activities in Australia. See Frasers Logistics & Industrial Trust Announcements
Frasers Logistics & Industrial Trust had completed 10 out of 12 acquisitions previously announced and is looking to complete the remaining two acquisitions of German properties in early-FY9/20.
For full-year FY9/19, DPU of 7.00 Scts formed 109% of our FY9/19 forecast due to outperformance in the 9M/19, attributable to new acquisitions. See Frasers Logistics & Industrial Trust Dividend History.

For FY9/19, Frasers Logistics & Industrial Trust completed 122,554 sqm of leasing, representing 5.5% of gross lettable area and achieved a 91.2% tenant retention rate with an average reversion of -3.8% as portfolio rents continued to be higher than market rents.
Post quarter-end, Frasers Logistics & Industrial Trust signed a lease with Amazon to fill up its vacant space, which led to portfolio occupancy rising to 100%.
Demand-supply dynamics remain supportive, with take-up levels of c.2.3m sqm being above new supply of c.1.3m sqm; vacancy levels are at 5-year lows across key cities of Sydney, Melbourne and Brisbane. The strong investor demand for industrial space has also led to yield compression, with Frasers Logistics & Industrial Trust recording a A$101m revaluation gain.

Finance costs in 4QFY9/19 were 21.7% lower y-o-y due to interest savings from the refinancing of A$170m borrowings and the repayment of debt with divestment proceeds. In line with the declining A$ cash rate, Frasers Logistics & Industrial Trust’s weighted average interest rate was 2.2% (2.5% in 4QFY9/19).
Aggregate leverage declined to 33.4% from 35.4% although we think this could creep up slightly once the remaining two German acquisitions are completed. As of 30 Sep 2019, Frasers Logistics & Industrial Trust has a debt headroom of A$781m prior to reaching the 45% limit.

We update our forecasts to incorporate the full-year FY19 numbers, update our A$ and £ FX assumptions and lower our Australian risk-free rate; these led to 0.7-6.8% increases in our FY20-21F DPU. See Frasers Logistics & Industrial Trust Share Price; Frasers Logistics & Industrial Trust Target Price.
We think Frasers Logistics & Industrial Trust’s key investment merits are
1. its ability to tap its sponsor’s pipeline of 39 properties in Europe and Australia,
2. supportive demand-supply dynamics in both markets, and
3. low earnings risk as a result of its long WALE and low upcoming expiries.

LOCK Mun Yee CGS-CIMB Research | Ervin SEOW CGS-CIMB Research | https://www.cgs-cimb.com 2019-11-06

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